Tax Preparer Fraud

Scenario: Good friend of S-Corp single shareholders spouse hired to do payroll taxes, yearly federal, state and privilege tax returns for corporation. Preparer placed 18K of paid in capital on corporate return first year. Preparer added random amounts of paid in capital and loans from shareholder over the next 9 years to total $477K, never placed loans to shareholder on returns to show the personal cash flow in and out of the corporation.

IRS never questioned or rejected any return. True paid in capital and loans from shareholder were never positive number as recent audit by independent CPA firm revealed. Owner owed business from 2K first year to 58K 6th year to 39K last year original accountant prepared business and personal tax returns.

As explained by auditor, every dollar of false paid in capital and loans from shareholder rolled to K-1 of owner as a negative dollar. Estimate $85K in refunds from IRS and State on personal taxes over 9 years due to accounting fraud.

Punch line: Spouse of owner filed for divorce, year 7. False monies were never revealed but accountant acknowledged the amounts under oath (Owner had been educated over the years by accountant that the paid in capital was off-set by the less retained capital on the 1120S). Divorce Judge used the $477 in paid in capital and loans to determine that value of business was $520K and awarded owner the business but spouse everything else and a yearly alimony/child support amount of $108K per year (five times the owners income).

Audit was completed after the 9th year and after owner had spent $80K for legal fees, $11K for the audit and lost $86K in pension awarded in settlement due to arrears on payments he had no means to make. Owner was also jailed for contempt as a result of the court believing he had the $477K hidden somewhere in the company with intent to cheat his former spouse.

Report was made to IRS for tax preparer fraud (pending), US Postal Service (Mail Fraud) and State Board of Public Accountancy. Board found no "probable cause" to pursue investigation but also did not ask owner for more information than the 105 pages of return/audit data sent to them as a bare bones show of evidence to show the returns differed from audit done from official bank records.

Has anyone ever heard of a similar case? Have an onion or any advice? Civil suit is planned against first accountant. Owner will likely owe IRS $85K plus interest for refunds he received personally due to the falsified business returns. What kind of punishment IF any can be expected from the IRS when they complete their investigation?

Reply to
Fleeced In Broad Daylight
Loading thread data ...

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.