Very rarely do we have a client ask us to fabricate a tax return. Most people, even if they were inclined to do that, know better than to even ask. I have had taxpayers after being asked for their deductions say something like “how much can I get away with?”, but that’s usually as far as it goes. Years ago I actually had one fellow take his data back to another preparer when I explained that his nonexistent horse was not a deductible horse racing business. Even after admitting he didn’t have a horse, he felt that he had gotten away with it for so long he should keep doing it, and that he was paying me to make it look right!

Unfortunately there are more than a few preparers around who feel that a tax return is a good forum for fiction, and the people who hire them think they are getting good service.

But consider the case of Robert Larsen of Riverside, CA. He was a tax preparer who falsified tax returns by overstating itemized deductions and business and investment losses. Clients were told that he possessed specialized knowledge in tax preparation, or that he could obtain receipts if necessary to justify deductions taken. He defrauded the Federal government of $3.6 million by falsifying at least 1162 tax returns.

Mr Larsen was sentenced to five and a half years in federal prison and ordered to pay restitution of over $200,000.

That takes Mr Larsen out of the party, but what about the 1162 tax returns? How did the IRS know it was $3.6 million? The IRS was able to calculate damages by examining those returns. I’m sure that made 1162 taxpayers real happy with Robert. Actually it was probably fewer taxpayers and multiple years per client, but you get the idea. Add to that the love letters they all will receive from the Governor of California asking for his share, and I’ll bet those taxpayers won’t be happy with the great deal they got.

Read more tax articles from Paul’s tax blog