On July 20, 2005, Nancy Jardini, chief of criminal investigation for the IRS was invited to testify before a House subcommittee about fraud and tax return preparers.
A current goal is to enhance enforcement of the tax laws by ensuring that attorneys, accountants and other tax practitioners comply with the law and adhere to professional standards.

During her testimony, she highlighted a Michigan investigation of a Jackson Hewitt franchise owner and
his manager.

According to court records, William Thomas, co-owner and general manager of three Jackson Hewitt franchises and one of his managers, Preston Harris, along with others, prepared more than 50 tax returns containing false and fictitious information, enlarging income tax refunds due to their clients by more than $115,000. The false information included claiming charitable contributions and un-reimbursed employment-related expenses. Some false returns claimed fictitious dependants and head of household status, along with creating fictitious Schedule C businesses, in order to generate an Earned Income Tax Credit.

Thomas was sentenced to 30 months imprisonment and Harris received 18 months. During sentencing, the total tax loss was calculated to be much higher and the men were ordered to pay $229,000 in restitution.

Return preparer fraud has been one of IRS Criminal Investigation’s (CI) main priorities for many years and 2005 is no exception, with the current national inventory of investigation reaching a five-year high. Four key fraud detection tools include fraud detection centers, identifying schemes using technology, CI’s undercover program and parallel proceedings.

Fraud Detection Centers
Since 1977, CI’s Fraud Detection Centers (FDC) has been screening suspected fraudulent tax returns by evaluating data identified by data mining algorithms, conducting critical investigative analysis, and working with our partners in the civil divisions of the IRS. During the 2005 processing year, more than 33,000 questionable returns have been identified claiming almost $100 million in refunds associated with unscrupulous tax return preparers.

Identification of Schemes Using Technology
CI, in conjunction with the IRS’s Information Technology Services (ITS), has developed the Electronic Fraud Detection System (EFDS). The EFDS houses large quantities of taxpayer data and has the capability to combine refund returns with other IRS files into one centralized system. In fact, EFDS is the second largest database maintained by the IRS. All refund returns are scrutinized by EFDS, which
results in the identification of a substantial proportion of false returns.

Special Investigative Techniques
Another effective investigative tool used by CI is an undercover program. Criminal Investigation conducts undercover operations in significant financial investigations when it is not possible to obtain evidence through less intrusive means. Over the past four years, CI has conducted about 400 undercover operations relating to unscrupulous return preparers.

Parallel Proceedings
Stopping unscrupulous return preparers as quickly as possible is critically important to the integrity of the tax system and one effective method is through the use of parallel proceedings. Parallel proceedings are simultaneous but separate criminal and civil proceedings. Obtaining a civil injunction effectively stops the illegal activities of the promoter while the criminal investigation proceeds.

Learn more about IRS CI.

About the Author
Special Agent Stephen Moore, JD, is the public information officer at IRS Criminal Investigation, Detroit. He serves on the MACPA Fraud Issues Task Force.

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