Fraudulent/aggressive returns

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#1
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I reviewed a tax return for a potential client that makes about $2 million each year. He was interested in financial services so i took a phone meeting.

He sent me his tax returns for 2021 and 2022 and his W2 was about 2.8 milllion each year. BOTH years had an S Corp loss of about 400K and rental real estate losses of about 100K.

He didn’t tell me about the S corps. When i asked, he got a bit defensive and said he submits expenses to his “TAX GUY”, who takes care of it all.

The returns were prepared by a shop in Los Angeles.

I inquired a bit and he told me that “his” guy was a rock star and told him all was kool.

In an E mail I told him I had no interest in working with him but told him, in my professional view, his return was borderline criminal.

Anybody ever just get pissed off when they see the fraud that some shops commit. I am confident this accountant, an EA, does this routinely.
 

#2
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Yep. I have encountered it with a local EA--he needs to lose his ability to practice.
 

#3
KoiCPA  
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I think the one that made me the most angry was a doctor with an S corp for the medical practice.

But there was also a "car rental" Sch C that rented a luxury automobile to herself and to her husband. They claimed almost half of the house as a home office (parking and "management" for the auto rental Sch C) as well as all actual expenses of the cars, arriving at zero net income.

The rental cars were reported as an expense of the S corp even though 1) the husband was a W2 employee for an entirely unrelated employer with no business even for that and 2) she had no business miles except commuting. Naturally, none of this got reported as personal use of auto via wages.

The runner-up, though slightly more comical one: a guy who did wedding photography and had over 200k/year from an S corp with no wages ever paid over at least ten years of history. There were mortgages on two homes and taxes for two boats. When I explained the requirement to pay wages his response was "I don't know how anyone can make ends meet that way!" I didn't say anything out loud, but to this day, "only one boat" is a catch phrase/inside joke.

(And I don't understand how the IRS can not audit the second guy. I see the difficulty of tracing income and expense among multiple activities for the doctor. But how can you possibly have a wedding photography/video business without any employees or contractors? A quick database search on his business code and his information returns should make it clear that he's cheating someone somehow. This is a slam dunk for an easy 50k in taxes and penalties.)
 

#4
AlexCPA  
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southparkcpa wrote:He didn’t tell me about the S corps. When i asked, he got a bit defensive and said he submits expenses to his “TAX GUY”, who takes care of it all.

The returns were prepared by a shop in Los Angeles.


Oh yeah, that's my guy. What's wrong with spending $200 for Advertising and $8,549,039 for Miscellaneous? :D
Even more of my antics may be found on YouTube:
https://www.youtube.com/channel/UCXDitB ... sMwfO19h7A
 

#5
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As someone who takes pride in preparing my personal and business returns accurately, it really grinds my gears when I encounter a prospect who is claiming 100% of all auto expenses as business related, and I know that they only have one car and their principal place of business is outside their home. Honestly, they'd be very lucky if their business use was more than 50% with those facts, as spread out as my city is.

It's like, you expect me to play the audit lottery for you when I don't even do that myself? I like to think at least some of these individuals get examined and the auto expenses get disallowed without substantiation.
 

#6
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ManVsTax wrote:As someone who takes pride in preparing my personal and business returns accurately, it really grinds my gears when I encounter a prospect who is claiming 100% of all auto expenses as business related, and I know that they only have one car and their principal place of business is outside their home. Honestly, they'd be very lucky if their business use was more than 50% with those facts, as spread out as my city is.

It's like, you expect me to play the audit lottery for you when I don't even do that myself? I like to think at least some of these individuals get examined and the auto expenses get disallowed without substantiation.



MY example the guy literally wrote off 561K of bullship expenses. 100 percent auto feels like nothing.

I can't believe the IRS hasn't caught up to the firm doing this work.
 

#7
Frankly  
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I can't believe the IRS hasn't caught up to the firm doing this work.

Congress has slowly but surely been dismantling the IRS for over 15 years.
 

#8
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southparkcpa wrote:MY example the guy literally wrote off 561K of bullship expenses. 100 percent auto feels like nothing.

I can't believe the IRS hasn't caught up to the firm doing this work.


What makes you think they're "bullship"? Just curious.

Preparers who commit fraud that blatantly eventually get caught. When they do, they start pulling all returns that have that preparer's PTIN on them and the house of cards falls down.
 

#9
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I have a tax-savvy client who is a medical consultant and for several reasons, he sees his physician client tax returns. Very sharp, but he is also smart enough to know that he should not do his own 1120s and 1040, etc. Great client.

He complains to me that so many of their CPAs write off 2 luxury cars at 100%. One for them, and one obviously for their spouse. Sometimes, 3 cars are written off completely.

I tell him that I suppose some of them go to the hospital and have 2 offices(?)

He says, "no, they're cheating, 95% of them, and you should see their travel". And that he doesn't want to cheat, but it really gets his goat.

I don't know what to tell him. Will they get audited? Most of them will not.

If "WE" (on this board) were IRS examiners, we could catch so much low hanging fruit it would be ridiculous. We could literally solve the spending deficit.

But the IRS instead audits my clients and asks for loan limit worksheets and loan docs when it is blatantly obvious that we only took an "easy to see" correct ratio of the loan just by glancing at the 1098.

WTF IRS?

You are making the honest taxpayers pay for EVERYTHING when you don't stop these clowns. The honest taxpayer's kids go to public school while the cheater's kids go to private school with the taxes they save by not paying them.

Will these fraudulently aggressive taxpayers and their preparers get caught? I would bet that so little of them will that this is a crime in itself.
 

#10
JAD  
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How can the IRS catch all of this? The IRS is not properly funded, has ancient technological infrastructure, does not handle itself properly in terms of alarming half of the population due to apparent political bias, resulting in an even worse reputation and a yanking in funding, must deal with politicians promising the country that audits of those making under $400k per year will not increase (yet in the examples above, aren't many reporting less than $400K?). The individual auditors make less than we do, so perhaps they are not the cream of the crop and/or are less motivated. The system is broken.
 

#11
KoiCPA  
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JAD wrote:... The individual auditors make less than we do, so perhaps they are not the cream of the crop and/or are less motivated. The system is broken.


No perhaps about this part. I'll keep a very long story short: I hired a former IRS auditor, and while preparing a simple 1040 return for a client, he got confused about what to do with W2 box 12 code DD.

No wonder I have to keep reading the IRM to these guys so they know what their own procedures are.
 

#12
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ManVsTax wrote:
southparkcpa wrote:MY example the guy literally wrote off 561K of bullship expenses. 100 percent auto feels like nothing.

I can't believe the IRS hasn't caught up to the firm doing this work.


What makes you think they're "bullship"? Just curious.

Preparers who commit fraud that blatantly eventually get caught. When they do, they start pulling all returns that have that preparer's PTIN on them and the house of cards falls down.


He is a gold trader. W2 employee working 50 hours a week. They set up a development company to say he is a RE professional. NO sales, nothing but 400K of expenses 2 years in a row and he is not developing anything. It’s a scam Trust me.
 

#13
Preppie  
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The part that frustrates me the most is when a prospect or client believes I don't know what I am doing because I won't claim all the bogus expenses their last 'guy' or their 'buddy's guy' is claiming. I'm not hurting for business, but it irks me to lose a client because they compare me to a fraudster and determine I am incompetent. Logically I know I am better off without those clients, but it leaves a bad taste in my mouth.
 

#14
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Preppie wrote:The part that frustrates me the most is when a prospect or client believes I don't know what I am doing because I won't claim all the bogus expenses their last 'guy' or their 'buddy's guy' is claiming. I'm not hurting for business, but it irks me to lose a client because they compare me to a fraudster and determine I am incompetent. Logically I know I am better off without those clients, but it leaves a bad taste in my mouth.


I think that’s an assessment many of us feel. I am no fan of their IRS or government in general, but I pay my taxes religiously and i am bothered by a guy who should pay 100K more in taxes and flagrantly is screwing us all. Not just the IRS.
 

#15
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southparkcpa wrote:He is a gold trader. W2 employee working 50 hours a week. They set up a development company to say he is a RE professional. NO sales, nothing but 400K of expenses 2 years in a row and he is not developing anything. It’s a scam Trust me.


Like I said, I was just curious.

It wasn't clear from your posts that there was no revenue on the S Corp operating co return. So the situation makes more sense now. It seems like he's burning the candle at both ends, and I like to think the IRS won't let too many years pass on an S Corp that consistently reports no revenue and $400k of deductible expenses before they open an examination, but who really knows for sure.

Seems like he's underpaying by closer to $200k each year given his income level and the stated amounts (rental loss of $100k may be legitimate but should likely be passive). He doesn't need a financial advisor, he needs to get a tax attorney on retainer...
 

#16
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If you haven’t represented the client, would you consider reporting the previous preparer to the Irs? I feel like this will be the only method to making headway long term.
 

#17
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fatherof3 wrote:If you haven’t represented the client, would you consider reporting the previous preparer to the Irs? I feel like this will be the only method to making headway long term.


I would LOVE to. I just see that as more than unethical.
 

#18
jon  
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First ask people who heard this, saw it, or experienced it, how big was the last fish they caught. If true there is no use talking to them - why would taxpayer's share their returns with the person talking, and maybe if it is just talk they probably have caught bigger fish, than ever recorded in the record books.

I have been around too long for my clients to even tell me a story about other people's returns. My answer is you are free to go to their preparer.
 

#19
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southparkcpa wrote:
fatherof3 wrote:If you haven’t represented the client, would you consider reporting the previous preparer to the Irs? I feel like this will be the only method to making headway long term.


I would LOVE to. I just see that as more than unethical.


Why do you see that as unethical?
 

#20
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IDunnoItDepends wrote:
southparkcpa wrote:
fatherof3 wrote:If you haven’t represented the client, would you consider reporting the previous preparer to the Irs? I feel like this will be the only method to making headway long term.


I would LOVE to. I just see that as more than unethical.


Why do you see that as unethical?


If in our course of business, we see a tax return that we firmly believe is BS, I don't think that gives us the moral high ground to "refer the taxpayer" to the IRS. We don't know all the facts etc. It's a close call and not sure I would fault someone for doing it, I just don't believe it fits the moral behavior standards of a CPA in public practice.
 

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