Discussion:FROM IRS - REPORTING FRAUD-ETHICS

Apparently the IRS does not consider it a violation of client privilege. taxea

I hope I have never prepared a fraudulent return, but based on the answers to the above questions, perhaps we all have, unknowingly.

That is exactly what I am saying}}

"I suppose it makes sense that an ex-Police Sergeant might be inclined to turn in cheaters." you got that right...the more that get caught, hopefully, the less tax burden we incure.

With due diligence a preparer with years of experience doesn't need to have been a police sgt in order to be able to "read" a client. I would not do a fraudulent return but I have no problem turning someone in when I have a strong suspicion or reasonable information that leads me to a perception that he is not doing things legally. taxea

3. If a member is representing a taxpayer in an administrative proceeding with respect to a return that contains an error of which the member is aware, the member should inform the taxpayer promptly upon becoming aware of the error. The member should recommend the corrective measures to be taken. Such recommendation may be given orally. A member is neither obligated to inform the taxing authority nor allowed to do so .without the taxpayer’s permission, except where required by law. (underlining is mine)

I am not sure the distinction between error and fraud. It would seem that identified and uncorrected error becomes fraud.

But, if I suspected a client of violent crime against a person, I don't know what I would do. I hope to think I would have the courage to try to help the police get him, in spite of the risk to myself.

Or do you send him away, telling him you can't do the return, and pick up the phone and call IRS? The one little problem is that ex-client has not done anything until he goes to another preparer, or tries to do the return himself. Maybe you find out that he left your office and tore up the evidence of fraud and went straight. That is probably the best possible outcome.

Billy Wilder's Love in the Afternoon contains a scene that is a perfect illustration of this, when young Audrey Hepburn calls the Paris police to report a crime that will happen. A cuckolded husband is to shoot a wife's lover; the desk sergeant more or less says 'you want me to stop a crime that has not happened?'

God, save us from such saints and do-gooders.

Well said!

I know that I tend to keep my posts brief and am misperceived or judged as harsh but. someone who is obviously commiting a white collar crime of major financial portions is just a bad as one who has robbed a bank or killed someone. How do you think we got where we are today...to many people look the other way.

I would not report every little thing that appears wrong...but, I think that my tax and law enforcement training and experience give me the ability to weed out the real crooks from the nieve public. taxea

2) victim's reliance on the statement and 3) damages.

I guess my other solution is ... we become a banana republic!

We have people with varying practices on this board, and perhaps my reactions come from the fact that 90% of my practice comes from the 1040, and 75% of them must be wage earners, so that the fraud type scenarios aren't just an exception but practically non-existent. Twice I have asked potential clients to leave my office because of lack of trust; I am not going to help them commit fraud, but I don't see any other solution.

I wonder if anyone here, in a situation where they meet someone with an agenda of fraud, would set up a second meeting, call CID and wear a wire?

Last week I spoke with a man who had retired after being a national director of Appeals; he'd accompanied a widow who is a client and we talked of the old days. I mentioned the time an audit client handed the Service a phony diary through me; he was surprised the Service did not charge him with criminal fraud, but only 75% civil fraud penalty [in 1981 it was 75%]. Had the man not handed me the diary in the cafeteria at the Federal Building in Philly 15 minutes before I was to meet with the examiner, I might have noticed the problems and called my boss for instructions, but I was buoyed by my client/salesman's assurance. The oddity is that IRS never noticed until almost five years later, after the case reached Tax Court.

The oddity was that he was his employer's #1 salesperson and everyone who knew him said he spent money like water, but he was lazy. The diary looked real and had a 1981 copyright, something I had a chance to check. The writing was different and in different inks and pencil and an occasional receipt was stapled into it. The Dome book required weekly totaling and had mileage mixed with dollars, because that is how the book worked.

The examiner threw out the entertainment because she believed the employer would pay for it; she was wrong on that account since almost all his entertain was after hours, which they did not cover. Appeals took the same position, so client demanded we file petition. District counsel was willing to allow the after-hour entertainment but disallow the lunches he had listed, meaning about an 80% win, but she said to me, "He has so few receipts; all his stuff is under $25, so I'd like to get a sense if the diary is real." As I walked back to my office, it hit me what was wrong. Told my boss but he decided to wait it out. Didn't take long; a day later she was calling him, saying they were amending the Deficiency Notice and charging Civil Fraud. They then supoenaed me, to testify that it was the book he had given me, but my boss told his client to cave in and take his medicine.....they had also supoenaed all the names in the diary etc etc etc.

Our mistake was not to call her immediately and concede the entertainment and mileage, the EBE.

I've heard of accountants who encourage their clients to create logs after the fact, with multiple pens, and then spill coffee on them, or step on them, to make them look more credible, but I don't think I could do that. Those would be the same accountants who send empty envelopes to the IRS every day of the year, to use as proof of mailing.

Like you say, it's almost always best to just take your medicine.

I know I would tell him to leave the office, and that he would not be my client. I did that once when I found a client, a woman this time, had her odometer set back....I told her to leave and that I would not handle her taxes. It was that smirk on her face when she realized I saw what she was doing that pissed me off the most, like she thought I would go along because she was so clever.

What happened above was a totally different situation, and the good guys won. But suppose as I sat there finishing my coffee I had noticed he had taken Joe Smith to see the Phillies while they were on strike. What do I do? Run with the book to my nearest CID office, or hand it back to him and tell him that the diary is worth diddlysquat? It is hard when writing to show the arrogance of the man; he was my boss' client.

Typed or handwritten W-2s may be an indication of fraudulent activity!

  (so much for half my clientele)

Another indication: "suspicious" people accompanying the filer!

Little or no documentation of income.

 (most clients don't seem to bring up undocumented income, very often)

And finally, "Fraudulent returns should not be filed with the Internal Revenue Service". The publication does not suggest where to send them.

The dicussion is good though, somewhat analogous to Kevin's discussion about a client's choice of career.

While it was going down, I had to meet a group manager who was a nephew of one of the ringleaders. It was awkward for he seemed a decent man, and was. I met with him to discuss an agent in his group with a 'God with a gun' attitude, someone more suited for work with the District Attorney. He was uncomfortable, though finally took notice when I said I would bring a complaint that the man violated the Hatch Act, since his attache case had candidate stickers over it.

So all the good guys are not on their side either.