I had two new tax clients come in this morning who both transferred from the same tax preparer, and who both had tragic stories to tell. In both cases the tax preparer was named “Vanna”, but did not put his name on the tax return.
The first individual was audited by the IRS. They disallowed all of his bogus tax deductions. They disallowed the thousands of “unreimbursed employee business” miles he drove to and from his job (not only were the miles inflated, but commuting miles are not deductible). They disallowed his clothing expense (clothes that can be worn in normal life, such as my suits, are not deductible). They disallowed his “meals and entertainment” expenses (meals and entertainment are usually personal expenses). They disallowed his travel expenses (vacation travel is not deductible). They now want interest and penalty. They charged him $17,000! I asked if he told the IRS that “Vanna” did his tax return. He said that the IRS told him that since Vanna’s name is not on his return, he, not Vanna, is responsible.
The second client came in less than an hour later. He was not audited. He applied for a mortgage. The bank looked at his tax returns and denied his mortgage. They did not deny him because his income or his credit score was too low. He had enough money for the down payment. They denied him because his tax return was obviously fraudulent. They did not want to do business with him. In addition, he is subject to a huge tax bill ($17,000 perhaps) if the IRS comes after him. This is also a problem. Anyone who knows anything about taxes, such as a mortgage banker, can look at the tax returns that this guy files and know that they are obviously fraudulent. What is more, if you think about it logically, some of the expenses that he claims are deductible do not make sense. For example, why would the government encourage people to take a long commute to work? The government would encourage us to drive less, not more. As such, with a tax return that is marked “self prepared”, it is impossible to argue that these deductions were taken in good faith. If the tax preparer signed the return, the IRS might forgive the penalty. With a “self-prepared” return, this is unlikely ever to happen.