In the latest Internal Revenue Service attack on rogue tax preparers, a Texas federal judge has prohibited a dozen preparers from falsely claiming tax credits for producing methane gas generated by landfills.
The IRS says the 12 preparers, located in Texas and Louisiana, were part of a group of 32 persons who worked to take $30 million of bogus tax credits for what is known as Fuel from Non-conventional Sources, or FNS. The FNS tax credit is a real credit that has existed for years. But it can't be taken fraudulently as it allegedly was on 6,000 tax returns in this case.
Without admitting wrongdoing, the preparers consented to the court order, signed by U.S. District Judge Martha A. Crone in Sherman, Texas. That's bad news for their clients; the permanent injunction also requires them to give the IRS a list of all clients for whom they prepared federal income tax returns claiming FNS credits from 2006 to 2009. (For more on how using a bad preparer gets taxpayers in trouble, see Will Your Tax Pro Get You Audited?)
The order does not bar the preparers from continuing to work on tax returns, a sanction that the IRS in recent years has sought against hundreds of other preparers.
According to the U.S. Justice Department, which represents the IRS, 23 of the 32 preparers sued for being involved with the phony FNS credits now have court orders against them in the case, which was originally filed in Florida and then partly transferred to Texas. That group includes George Calvert of Hermando Beach, Fla., and Gregory Guido, of Lithia, Fla. The IRS describes them as the architects of what the agency calls a "tax-fraud scheme" dating back nearly a decade.
Last summer, both consented to court orders in Florida restricting their tax return activity and, in the case of Calvert, barring him from the field completely.
In colorful detail the original lawsuit said that Calvert and Guido created partnerships purportedly owning methane gas production facilities at landfills in Puerto Rico, Illinois, New York and Connecticut. The partnerships went by such names as GRP2, Green Earth Land General Partnership and CH4 Florida.
But the feds said, "In most instances there is no energy production facility in place on the landfill, and even when such an entity exists, there is no infrastructure in place to produce energy."
Moreover, the IRS said, buyers of the interests, which went for about $2,500 each, were allowed to pay for their interests the following year, using the tax refunds generated by the credit. Those refunds averaged $5,000.
Facilitating the scheme, the IRS said, was a computer program that prepared and printed out for each investor "a sham promissory note, a sham assignment agreement, a sham support statement and a sham production report." The feds said that customers "never" signed the promissory note.
The tax preparers involved in the most recent lawsuit were characterized as "subpromoters."
The IRS has announced plans to regulate tax preparers, who have operated in a rather free and easy legal environment for nearly a century. The rules don't kick in until next year, but there are measures taxpayer can take now to avoid bad apples.
Meanwhile, the IRS continues to pursue individual preparer cases. Earlier this week the feds sued two Miami preparers, alleging they falsely claimed the first-time home buyer's credit for dozens of clients.
See Also:
Miami Vice: Home Buyer Tax Credit Fraud Alleged
Will Your Tax Pro Get You Audited?
Ten Ways To Audit Proof Your Tax Return
