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From The Stupid Preparer Files: Oh I Mean Stupid Attorney Files

Stacie says: “I don’t know about the suspsension period mentioned below.  The IRS reports that attorney Michael McCall was suspended for 24 months from practice before the IRS for writing a bogus tax opinion.  Frankly, if this guy wrote a bad opinion on purpose, I think it should be a permanent suspension.  But that’s just me.”

WASHINGTON — The Internal Revenue Service has accepted an offer of consent to suspension from bond attorney Michael W. McCall. Under the terms of the settlement agreement, McCall will be suspended from practice before the IRS for at least 24 months for writing a false tax opinion. Thereafter, he may petition for reinstatement.

“Practitioners have a duty to their clients, the system, and the municipal finance bond community to ensure that the tax advice they are giving their clients complies with the law and is complete and accurate,” IRS Office of Professional Responsibility (OPR) Director Karen L. Hawkins said.

McCall was engaged by a state of Washington county municipal sewer district to act as co-bond counsel and special tax counsel to write an opinion as to the tax-exempt status of the district bonds issued in October 2000 and to perform due diligence with respect to certain transactional matters relating to the bond issuance. The district issued the bonds for its utility local improvement district for a proposed commercial development. The bonds were issued in violation of state law as the utility local improvement district was located outside of the sewer district boundaries.  The bonds defaulted and have been determined to be invalid.

The OPR alleged that McCall’s opinion on the tax-exempt status of the district bonds was false under Circular 230, Section 10.51(j), and that McCall’s opinion on certain transactional matters was also false under Section 10.51(j).  In addition, the OPR alleged that McCall failed to perform due diligence under Circular 230, section 10.22, with respect to transactional matters related to the bond issuance, including an undisclosed payment to him from bond proceeds received by the developer.

Following an OPR investigation, McCall admitted to violations of Circular 230 for giving false opinions, knowingly, recklessly, or through gross incompetence (Treasury Department Circular 230, Section 10.51(j) (2000)), and for failing to exercise due diligence (Treasury Department Circular 230, Section 10.22 (2000)).
 
The settlement agreement included a disclosure authorization that allowed the IRS to issue this release.

IRS Patrol: An Installment of the IRS’s Own Stupid Preparer Files With Elements of the DUH Factor Too

Looks like the IRS has caught on to The Stupid Preparer Files.  This is the second news release by the IRS about stupid preparers in a couple of months.   If you are a loyal reader of  More Tax Tips you know that I like to keep readers up to date on IRS tax tips and news releases, so I am – shall we say – on top of these releases.  I can’t recall seeing this particular topic – not in the last few years anyway.  

One other point of interest you will notice as your read about this Stupid Preparer is this story also has elements of the DUH factor too. 

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IRS Wins 48-Month Suspension of a Lawyer for Failing to File His Own Tax Return and Late Filing

WASHINGTON — Massachusetts Tax Attorney Kevin Kilduff was barred from practicing before the Internal Revenue Service for 48 months for failing to file one federal tax return and for filing another five returns late.

“Professionals who demonstrate a lack of respect for our tax system by failing to meet their own tax filing obligations should not expect to retain the privilege to practice before the IRS,” said Karen L. Hawkins, Director of the IRS Office of Professional Responsibility (OPR).

The OPR had originally sought the 48-month suspension, alleging Kilduff’s conduct was willful and disreputable. OPR enforces standards of conduct under Treasury Circular 230, which governs enrolled agents, attorneys and certified public accountants. Kilduff formerly worked for the IRS Office of Chief Counsel.

The Administrative Law Judge (ALJ) subsequently set the penalty at a 24-month suspension. Kilduff appealed the ALJ decision to the Secretary of the Treasury’s Appellate Authority, which in fact ultimately imposed the harsher 48-month suspension.

Kilduff’s suspension is for a minimum of 48 months. OPR has sole discretion regarding his reinstatement to practice before the IRS. At the very least, Kilduff must file all federal returns and pay all taxes he is responsible for, or enter an acceptable installment agreement or offer in compromise.

The complete decisions of the ALJ and the Appellate Authority are available on the OPR page on this web site.

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So not filing your own tax return is not a good idea. – DUH

IRS Patrol: IRS Suspends Tax Practitioner for Preparing False Tax Returns

Monica Lawver over at The Tax CPA has some great commentary regarding this IRS release.  You should check it out.  She provides some interesting insight on regulating the profession in her post The Three Rules.

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WASHINGTON — A Certified Public Accountant has been suspended for twelve months from practice before the Internal Revenue Service by the Office of Professional Responsibility for providing false or misleading information in connection with the preparation of his clients’ tax returns.

“Practitioners have a duty both to their clients and to the system to insure taxpayers are complying with tax laws and filing complete and accurate tax returns,” Karen L. Hawkins, Director of the Office of Professional Responsibility said.

Robert A. Loeser, a certified public accountant from Houston, Texas, assisted his clients to lower their tax bills by claiming false business expenses on tax returns he prepared.

For no legitimate business purpose, Loeser’s clients were advised to forward funds from their businesses to two corporations Loeser controlled. The corporations then rebated the funds to his clients.  Loeser prepared the clients’ books and business tax returns expensing and deducting the entire amounts that were paid to the corporations.

The IRS alleged Loeser violated Circular 230 by giving false or misleading information to the Department of Treasury and the IRS.

The settlement agreement included a disclosure authorization that allowed the Office of Professional Responsibility to issue this release.

The Office of Professional Responsibility (OPR) establishes and enforces standards of competence, integrity and conduct for tax professionals — enrolled agents, attorneys, CPAs, and other individuals and groups covered by Treasury Circular 230.

From The Stupid Preparer Files – Woman Claims Connecticut Residents are Not Subject to Federal Income Tax – a Good Post From the Past

[I do love this story – another good post from the past]

By Stacie Clifford Kitts, CPA

I do enjoy reading about how stupid some tax preparers can be. It’s like a tax preparation train wreck. You know the kind you want to slow down to see. Moreover, the messier the scene, the harder it is to look away.

Nevertheless, regardless of how many stories I read, I am still amazed at tax preparers who are willing to go to jail over some income tax. Honestly, the blatant stupidity is genuinely mind numbing.

A favorite concerns a Connecticut woman, Sunita Buddhu who took over her father’s tax practice following his incarceration. Yes, I said it, his incarceration. Daddy went to jail for -get this – producing counterfeit checks from his place of business. The same business where he also prepared tax returns.

Now what do you suppose she told her father’s tax clients? Ummmm – I am sorry that my dad’s in jail – but no worries, I can still prepare your tax return, no need to worry about that fake check thingy.

Outstanding!

Apparently, whatever she said worked because she continued preparing returns. But more baffling even than her clients who agreed to let her continue to work on their returns, is why she agreed to step in. Now let’s see, dad is in jail for fraud, ya think there might be a problem with his tax practice? Ya think- just maybe?

Well yes Sunita, there did appear to be a problem. Following her father’s incarceration, the IRS started a tax preparer investigation and proceeded to audit over 600 returns she and her father had prepared.

Oh, but now the story really gets good. As a result of the investigation, Ms. Buddhu decided it would be a good idea to file amended returns for her clients moving false and obviously disallowed Schedule C deductions to Schedule A. Huh, okay if the deductions are bogus, which apparently they were, hello – they are still bogus regardless of the schedule they’re on. Duh.

But wait, there’s more.

Undaunted, her behavior gets even more bizarre when she informs her clients that the IRS does not have the authority to conduct examinations of Connecticut resident’s tax returns. Okay, talk about frivolous arguments. What is so special about Connecticut?

But wait, there’s more.

She also told her clients that because they were residences living and working in the United States, they were only required to pay social security taxes, but were not subject to income tax. Yep that’s right, according to the Buddhu’s only non-resident aliens are subject to income tax.

But wait, there’s more. Oh, I do love this one.

She actually prepared letters that she mailed to the IRS stating her frivolous tax arguments 1) the IRS did not have jurisdiction over Connecticut residents and 2) U.S. residents living and working in the U.S. were not required to pay income tax.

Holy Cow!

Unfortunately, not only will this crazy out of control tax preparer suffer from this train wreck but so will her clients. They are now responsible for paying the additional taxes and associated penalties and interest that resulted from the audits of their returns. And at least one client had to barrow against their house to pay the debt to the IRS.

The Duh Factor: This One is Filed Under How Stupid Can You Be

This article was taken from the FTB’s Criminal Corner – I think this is right up there with one of my favorites.

“On November 19, 2009, a Sunland interior designer was sentenced after pleading guilty to one felony count of state income tax fraud and one felony count of insurance fraud.

According to court documents, Ronald E. Hunt, 56, continued working as an interior designer from 2003 to 2006, including an appearance on an HGTV home improvement show during the time he claimed to be disabled. An employee with the private insurance company paying Hunt’s disability saw the show and alerted the California Department of Insurance (CDI). An investigation confirmed Hunt intentionally and knowingly concealed his secondary employment from his disability insurance company by falsifying written statements and deceiving a company field representative. During the time Hunt claimed to be disabled, he collected more than $400,500 in income as an interior designer while also collecting $147,600 in disability benefits. Hunt also failed to report this income on his state income tax returns for these same years.

Hunt was ordered to pay $151,700 restitution to the private insurance company and $31,000 to us, representing the unpaid tax, penalties, interest, and the cost of the investigation. He was sentenced to 200 hours of community service and 60 months of probation.

Judge David M. Horwitz handed down the sentence on Tuesday, November 17, in Department 50 of the Clara Shortridge Foltz Criminal Justice Center. Los Angeles County Deputy District Attorney David Berton prosecuted the case. This was a joint investigation between the CDI and us.”

Is it really necessary to say Duh here?  I mean really.

Sam Antar “It takes one to know one” and He Knows Patrick Byrne

By Stacie Clifford Kitts, CPA 

I’ve watched with interest the online clash between CEO Patrick M. Byrne of Overstock.com and a handful of bloggers and journalists. The basic issue appears to be a consensus, among this group that Mr. Byrne is (allegedly) a crook [and maybe a little unstable] who is also (allegedly) cooking the books of the company he is charged with running.

Sam Antar who has the best bio snippet I have read to date….

I am a convicted felon, former CPA, and former CFO of Crazy Eddie. There is a saying, “It takes one to know one.” I teach law enforcement, professionals, and students about white collar crime and how to catch corporate miscreants….

In my blog, I expose white collar crooks just for the fun of it…

….really really R-E-A-L-L-Y dislikes Mr. Byrne. Based on Mr. Antar’s “it takes one to know one” philosophy, Sam insists that he knows Patrick pretty well.   

Mr. Antar has made this determination based on his analysis of the publically available financial information of Ovestock.com. You can read Mr. Antar’s many comments about Mr. Byrne at his acclaimed blog White Collar Fraud

Mr. Antar’s rehash of his part in the Crazy Edie fraud scandal at his website http://www.whitecollarfraud.com is also a good read. There is no doubt that this recount should be mandatory reading for all new staff accountants.

As for my take….

I’ve always believed based on my experiences working in both public accounting and industry, that the financial statement audit process [limited to large publically traded companies]was for the most part a silly practice that boiled down to ongoing compromises made by auditors to sustain the fine line walked to keep clients. Although the audit practice has tightened up -some – over the years i.e. the PCAOB, I think we are still looking at an overriding drive for accounting firm profit over good sense. 

Evidence you ask.

In my opinion, the fact that Overstock.com was able to find an audit firm amidst all the (alleged) controversy is evidence enough. It’s too bad that the audit firm’s work papers aren’t public information, because I would looove to get my hands on the Client Acceptance Form that KPMG put together to prove their acceptance of this client. If only to see how they have addressed these allegations.  [I hope they have really good practice insurance.]

Anyway…What’s a Client Acceptance Form you ask?

A Client Acceptance Form is a checklist that an auditor uses to decide whether they should accept a company as a client. This document incorporates questions about whether the firm believes that they have the proper knowledge, training, and staff to handle the engagement. However, it also wants to know things about the target client too. For instance, there are questions about the integrity of the company’s management, the chances that there is fraud in the financial statements, and questions regarding whether there is evidence that management may be motivated to commit fraud.

There appears to be plenty of evidence that the management integrity of Overstock.com is at least in question [if of course you believe the many  journalists and bloggers who have commented on  Overstock’s current woes]. This alone should have precluded an audit firm from accepting the engagement (in my opinion). Obviously, this acceptance is profit motivated, but KPMG – people – come on  -what – are  – you –  thinking.

If you would like to read, more about the controversy check out this recent post by Sam

Open Letter to the Securities and Exchange Commission: Conflicting Disclosures by Overstock.com Reveal Improper Audit Opinion Shopping

Post Script: I saw fraud unfold up close and in person at a public company I worked for in the 90’s. I was not part of the fraud scandal.  However, watching what happened after it was discovered makes for an interesting story.  Stay tuned for more on that truly fascinating tale.

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