LARGE TAX REFUNDS AND THE GHOST PREPARER
Earlier this year a Charlotte man was charged with tax fraud in a 20 count criminal indictment, charging him with aiding and assisting in the preparation and filing of false returns over a five year period.
According to the allegations, between 2014 and 2021 the Defendant, Tijan Mboob (“Mboob” or the “Defendant”) prepared hundreds of fraudulent returns. The indictment further alleges that the Defendant was a “Ghost Preparer,” who failed to identify himself as a paid tax preparer on the tax returns he submitted to the IRS on behalf of his clients, despite the fact he was compensated for his services.
The IRS requires paid return preparers to provide information, including name, address and phone number for the preparer, Federal Tax Identification or Social Security Number and PTIN number as well as other information.
The indictment specifically alleges that Mboob prepared tax returns on behalf of his clients which contained fabricated and fraudulent items. Some of the items included false filing status, false American Opportunity and education credits, false itemized deductions and false reforestation credits. The hundreds of fraudulent returns prepared by the Defendant resulted in the overall reduction in tax liability on behalf of his clients and their receipt of large refunds totaling $4.7 million dollars.
Finally, the indictment indicates that the Defendant failed to report any of the preparation fees he eared as income for 2017 and 2019, and in addition, failed to file returns for 2019 and 2019.
Each Year the IRS warns the public about return preparer scams. However, there is no shortage of victims, who fall prey to these predators each year.
While the Ghost Preparer is also a paid preparer, he differs from the fraudulent return preparer who provides identifying information on the tax returns he or she prepares. The Ghost Preparer will submit a fraudulent tax return and designate the tax return as “Self-Prepared.” In doing so, he or she will deliberately omit any paid return preparer information at the bottom of the tax return. Clients are delighted to learn that they are getting a $10,000 refund, only to later discover that it was too good to be true. How is this possible?
Its possible thanks to the illegal business practices some return preparers engage in. Most are unlicensed and not subject to Circular 230. In addition, many conduct business using a nominee as the face of the tax preparation business. These charlatans are generally are able to grow their practices based solely on their ability to generate large taxpayer refunds for their clients and by word of mouth.
The return preparer, who engages in these illegal acts, will have a federal identification number, as well as PTIN and ERO numbers. These preparers are monitored by the IRS, who, through AI and analytics is able to identify patterns in certain types of deductions, business losses, credits and withholding. Many of these preparers have been identified and either civilly enjoined from preparing tax returns or criminally prosecuted. The ones who escape prosecution simply set up shop down the road, making use of new nominee.
A Client who receives a large tax refund to which he or she is not entitled may be thrilled and think he or she hit the jackpot. That joy quickly gives way to fear and anxiety when the Taxpayer receives a notice from the IRS. In certain cases, it can involve multiple years.
The morale of the story is choose your return preparer wisely and asks lots of questions. It is always best when selecting a return preparer to select an attorney, certified accountant or enrolled agent, all of whom are subject to Circular 230, which governs the conduct of return preparers. Further, if a friend or relative recommends a return preparer based on the fact that they systematically receive large refunds, I would be suspicious.
If you have been receiving large refunds, it would be wise to have a tax attorney, certified public account or enrolled agent review your tax return.
