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AG and LDR Crack Down on Tax Fraud

August 26, 2013

By the time the Taxpayer Refund Intercept Program (TRIP) singled out yet another tax return prepared by Innovative Professional Financial Services, Inc. (or IP Financial Services), a distinct pattern began to emerge. The Louisiana Department of Revenue (LDR) uses the TRIP program to monitor and carefully analyze tax returns as they are processed through their system. Unusually large refunds were rising to the top from returns prepared by IP Financial Services. Taxpayers who had their tax returns prepared by this firm were contacted by LDR to verify their income, taxes paid, and taxes withheld. The results confirmed the suspicion. Numerous discrepancies were identified, and a scam was discovered.

IP Financial Services president John Labee promised taxpayers that he was capable of finding new tax credits and write-offs that would greatly reduce a taxpayer’s liability and increase their refund. For the average cost of $500, he advertised he could discover hidden deductions and raise refund amounts in ways other preparers could not. Many taxpayers believed him – to their loss.

Labee created fake W-2 forms that reported false wages and payments to LDR that were never made. He overstated tax withholdings and falsified documents in an attempt to trick the computer system with such an elaborate process that taxpayers were unaware of his tactics. By claiming deductions not permitted by both the Internal Revenue Service (IRS) and LDR, the refunds he tabulated and transmitted to LDR were ultimately found to be merely a ploy against his customers who were the ones that were forced to reconcile the amount they actually owed LDR with the amount Labee said they were owed by LDR.

When contacted by angry taxpayers regarding the discrepancies on their returns, Labee provided them with checks written to LDR with which to pay their tax liabilities. 52 of those checks were returned for nonsufficient funds (NSF). Labee was arrested in September 2011 and charged with Filing and Maintaining False Public Records (La. R.S. 14:133) and Issuing Worthless Checks (La. R.S. 14:71). He pleaded guilty on August 19 in 19th Judicial District Court in Baton Rouge to six felony counts of issuing worthless checks. He was ordered to pay $82,000 in restitution and faces a maximum 60 years in prison. The sentencing hearing is scheduled for October 17, 2013.

Additional charges from federal prosecutors are pending against Labee, including 9 counts of aiding or assisting in preparation of false documents; 2 counts of making false statements on income tax returns; 1 count of attempted mail fraud; and 1 count of making false declarations before a grand jury.

A New Focus on Fraud

When this case came to the attention of Louisiana Secretary of Revenue Tim Barfield, he began to work with LDR’s Criminal Investigations Division (CID) for ways to combat this type of fraud. Data revealed that an increase in the number of tax preparers completing fraudulent returns on behalf of taxpayers was on the rise. A shift in focus was ordered that would target tax preparers who opened businesses only to illegally profit from the trust of taxpayers.

In partnership with the Louisiana Attorney General’s office, in March 2013, LDR officials detailed two commissioned criminal investigators to the LDR staff. These law enforcement officers are housed in the Louisiana Department of Justice (DOJ) and work with DOJ staff.

“This addition to our staff and our partnership with the Attorney General’s office has strengthened one of the core competencies of our department,” LDR Secretary Tim Barfield said. “We are charged by the taxpayers of this state to protect their interests and focus on tax fraud and similar issues. The investment in these law enforcement personnel is already paying off.

Last week, six other tax preparers were arrested on charges ranging from filing false public records to fraud:

• LaKindra Williams – 143 E. Holly Street, Baton Rouge
• Chandris Ferguson - 12457 Lockhaven Avenue, Baton Rouge
• Duane Dufrene – 22 Parlange Drive, Destrehan
• Leroi Jackson – 10909 Vienna Street, New Orleans
• Edris Ferguson - 12171 Canterbury Park Drive, Geismar
• Maletica Ferguson - 5155 Waterton Drive, Lithonia, GA

“Louisiana will not tolerate fraud, whether committed by pharmaceutical companies or by fraudulent tax return preparers who are stealing from their clients and from the state. We are committed to partnering with the Department of Revenue and other state agencies to track down these lawbreakers and recover the state’s funds,” stated Louisiana Attorney General Buddy Caldwell.

Secretary Barfield intends to strengthen and dedicate more personnel and resources to fraud detection that will ultimately provide direct benefit to Louisiana taxpayers.

“The widespread abuse by tax preparers should serve as a warning to taxpayers across the state,” Barfield said. “Do not trust someone who promises something that sounds too good to be true. Make sure you have done your homework on who prepares your tax returns.”

Barry Kelly, LDR’s Criminal Investigations Division (CID) director, plans to expand the scope of future investigations. “There will be more arrests as we continue to aggressively move forward,” Kelly said. “We hope to discover everyone who commits tax fraud – especially those who put themselves forward as servants of the public trust. This is our stewardship to the people of Louisiana, and we will do it well.”

How to Select a Tax Preparer:

If you are going to pay someone to do your tax return, be sure to choose your tax preparer wisely. Remember that you are legally responsible for what is on your tax returns even if they are prepared by someone else. So, it is important to find a qualified tax professional.

Be sure to:

1. Choose a preparer who will be available to answer questions after the return has been filed.
2. Find out what the preparer’s service fees are before the return is prepared.
3. Avoid preparers who base their fee on a percentage of the amount of your refund or who claim they can obtain larger refunds than other preparers without first reviewing your returns.
4. Avoid tax preparers that ask you to sign a blank tax form.
5. Before signing your return, carefully review it and ask questions.
6. Ask any tax preparer for references.
7. Check to see if the tax preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs or the state’s bar association.
8. Check to see if the tax preparer belongs to a professional organization that requires its members to pursue continuing education and holds them accountable to a code of ethics.
9. Check to see if the tax preparer has a proper Preparer Tax Identification Number (“PTIN”) from the Internal Revenue Service (“IRS”), which is required to file federal tax returns.
10. Check to see if the IRS has not obtained a permanent injunction prohibiting the tax preparer from preparing federal tax returns.
11. Always question entries on your return that you do not understand. Never sign a blank return.
12. Insist that the tax preparer sign the return and provide appropriate taxpayer information on the return.

Traits of a reputable preparer:

1. They ask multiple questions to determine whether expenses, deductions and other items qualify as legitimate tax deductions.
2. They remind clients they should keep careful and complete records in order to substantiate information contained on their tax return.
3. They provide their clients with a copy of their completed return for their records.
4. They respond to contacts made by their clients in a reasonable period of time.