Tax preparation hell: Justice Dept: filed 240 lawsuits to stop fraud since 2001

Not exactly what you want hear about your tax preparer: The US Justice Department this week filed a civil injunction suit seeking to bar East St. Louis, Ill., resident Mary Powell from preparing federal tax returns for others. According to the government complaint filed in U.S. District Court in East St. Louis, Powell has prepared more than 1,000 returns since 2003 and cost the government some $2.9 million.   The complaint states that the Internal Revenue Service (IRS) examined 109 returns Powell prepared and found that all of them understated the customer’s tax liability. According to the complaint, the average under-reported tax was $2,794 per return.   The suit alleges that Powell fabricates or inflates business expense deductions, improperly lists ineligible dependents, claims false earned income tax credits, and claims false education credits. The suit asks the court to order Powell to give the government a list with her customers’ names, addresses, e-mail addresses, phone numbers and Social Security numbers. One would hope this is an isolated incident but alas: Since 2001 the Justice Department’s Tax Division has obtained more than 240 injunctions to stop the promotion of tax fraud schemes and the preparation of fraudulent returns.  And last month the DOJ went after two brothers Archie and Theodore Pugh preventing them from preparing federal income tax returns.  That suit,  filed in the U.S. District Court for the Eastern District of New York, alleges that the Pughs, who operate Archie’s Tax and Accounting Service in Jamaica, N.Y., prepare tax returns for customers based on the so-called “claim of right” argument—a frivolous claim that compensation for labor is not subject to federal income tax. The suit alleges that the Pughs have prepared more than 80 frivolous tax returns since 2000 that have caused losses to the U.S. Treasury exceeding $2.4 million.