False Refund Schemes: A Criminal Matter For Those Who Promote Them

By Special Agent Janet Oakes
Public Information Officer
IRS Criminal Investigation Division
St. Paul Field Office

It’s that time of year again – time to start thinking about filing tax returns. Each year during filing season, the Internal Revenue Service has put out a summary of scams that have been seen in various parts of the country as a heads-up to taxpayers about what to watch out for. But it also serves as a warning to those who may be inclined to participate that there could be criminal consequences.

Inevitably included within the list of scams is a message about return preparation fraud. While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. It is important to know that even if someone else prepares a tax return, the taxpayer is ultimately responsible for all the information on the tax return.

Return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain tax credits, such as the Earned Income Tax Credit, fraudulently.

In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer — not the return preparer — must pay the additional taxes and interest and may be subject to penalties.

Helpful Hints When Choosing a Return Preparer

  • Be careful with tax preparers who claim they can obtain larger refunds than other preparers.
  • Avoid preparers who base their fee on a percentage of the amount of the refund.
  • Use a reputable tax professional who signs your tax return and provides you with a copy for your records.
  • Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.
  • Review your return before you sign it and ask questions on entries you don’t understand.
  • No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.

The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution and/or asserting appropriate civil penalties against unscrupulous return preparers.

Fraudulent Returns Lead to Imprisonment for Milwaukee Resident

Calves (Connie) Haynes of Milwaukee was sentenced in October 2007 to 22 months imprisonment for making false claims for income tax refunds from the IRS. Haynes was charged with preparing false and fraudulent federal income tax returns for herself, relatives, friends and other individuals seeking tax refunds to which they were not entitled. To support these claims, Haynes prepared false Wage and Tax Statements (Forms W-2) reflecting fraudulent employment, income, and tax withholding information.

According to the indictment, Haynes prepared more than 50 false income tax returns that were filed with the IRS seeking more than $250,000 in federal income tax refunds. Haynes pleaded guilty in March 2007 to two felony counts of making false claims.

As outlined in a news release issued by the United States Attorney’s Office, Eastern District of Wisconsin, and the filed plea agreement, Haynes first came to the attention of the IRS in March 2003 when a volunteer at an IRS Volunteer Income Tax Assistance (VITA) center contacted the IRS about Haynes. The volunteer indicated that Haynes was threatening her because Haynes had prepared a fraudulent return, utilizing fraudulent W-2s, for the girlfriend of the volunteer’s son and that the girlfriend had not paid Haynes once she received her fraudulent refund. The volunteer indicated that Haynes was approaching people at the VITA site and offering to prepare fraudulent returns for them in return for a share of the refund.

Haynes utilized both established tax return business locations as well as electronic filing businesses over the Internet to file the false returns. For many of the returns, Haynes established an account and provided her own e-mail address and, on a few occasions, provided her credit card to pay for filing the returns. Also, on several returns Haynes provided her own Milwaukee address as the taxpayer’s address on the false returns.

As the time comes to think about preparing tax returns, it’s good to remember the importance of selecting a return preparer wisely. After all, they are looking at your personal financial information which should be safeguarded as much as possible. More information regarding criminal investigation and tax fraud can be found at www.irs.gov keyword “fraud.”

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