I have returns to do! I shouldn’t be messing with Instant Tax Service’s (ITS) injunctions but it’s like watching one of those “dumbest _____ in the world” shows. You can’t believe how stupid/fraudulent people can be. There were several injunctions issued, one for the owner in Dayton, OH and 4 more in Chicago, Indianapolis, Las Vegas and Kansas City. I’ve only fully read the injunction for the KC area but that one is bad enough. It could have been used as a how to guide to prepare bad returns. The government found the following issues:
- ITS fabricated W-2 and filed return using pay stubs. They actually used software to create dummy W-2s to put in customer files.
- Since most pay stubs don’t have the business’s EIN, they maintained a list of area EIN so they would have the info needed to file without a W-2. If the employer wasn’t in their EIN list, they used the number and name of another business.
- They created phony business income for Schedule C’s. The idea was to maximize Earned Income Credit. They were smart enough to claim expenses make the Schedule C appear more realistic.
- They claimed the education credit when the taxpayer had not taken college classes.
- ITS would regularly file married taxpayers as single or head of household to increase the refund.
- They would draw customers in with holiday loans then file their return when electronic filing began. They would do this without the taxpayer’s signature on the e-file form.
- ITS, through Tax Tree (a loan company also owned by the owner of ITS), offered false and deceptive loan products. The loans were used to draw customers in so they could gouge them with fees. The Ohio injunction against ITS owner Fesum Ogbazion charges that the average fee for the top 80 franchises was over $400.
- Finally, ITS hired unqualified tax preparers and didn’t train them to do taxes but to create fraudulent returns. They also told their employees that they couldn’t get into trouble for creating the bad returns. It would be the client’s problem.
The government estimates that the KC Metro group cost the US Treasury $2.3 million in false refunds just for 2011. Based on a review of 2000 returns prepared, it’s estimated that 60% of the returns ITS filed were fraudulent. The IRS has been auditing ITS’s work since 2008 and has issued warnings and reprimands which have been ignored.
So this bunch of ITS franchisees and preparers will not be allowed to be involved in the tax business in the future. And they have 30 days to notify, by mail, all clients who they had prepared a tax return since 12/1/2010 that there may be problems with their return and give them a copy of the injunction. They also have to give the government’s lawyers a list, with all contact information they have, of everyone for whom they prepared a Federal return for since 12/1/2009 within that same 30 days.
It will be interesting to see what financial penalties will come out of this. The injection mentions sub-sections 6694(a) and (b) and 6695(g). 6694(a) is for taking an unrealistic position and carries a penalty of the greater of $1000 or 50% of the fraud. 6694(b) is for the willful disregard of the rules and could cost the greater of $5000 or 50% of the fraud. Finally, 6695(g) is $500 for not doing EITC due diligence. All of those are for each incidence found.
Instant Tax Service has been a thorn in ethical preparers’ sides for a long time. These investigations have been going on quietly for years. ITS’s competitors have long been frustrated by the apparent lack of concern on the part of the IRS. I know that they have been a topic of discussion on the Drake Software Forum. And it’s important to note that ITS was blatant in their disregard of the rules even after warnings from the IRS. But there still many preparers that are guilty of all or some of the same infractionswho will fly under the IRS radar.
I’m sure these injunctions will spark discussions. Could the IRS moved earlier and saved taxpayers the problems caused by ITS? Will these injunctions really stop these people or will they just move to a new location with a different name? Will licensing help get rid of bad preparers like ITS? How hard should the IRS come down on the clients ITS used? What financial penalties will ITS get hit with and don’t forget civil lawsuits? What about criminal charges? As more info comes out about the ITS, I’m sure there will be more questions.