Tax preparers gone wild

Only four U.S. states — California, Oregon, Maryland and New York — regulate independent tax preparers. Many preparers are reputable CPAs, lawyers or IRS-certified "enrolled agents." But many just hang up their "We do taxes!" signs and are in business.

Many naïve taxpayers — who believe that all tax preparers have to be certified, licensed or regulated in some way — place their entire trust in supposed experts to handle one of the most serious dimensions of adult life.

Regulations can include requirements to demonstrate subject matter knowledge and to disclose prior criminal convictions, and they remind practitioners that authorities are watching their conduct.

So, lack of regulation creates a Wild West for tax preparers who are incompetent or dishonest or both. And that's where we meet Bonnie G. and Donnie Z.

Bonnie and Donnie, whose separate cases I encountered in my former job, were two corrupt tax preparers with long and exotic résumés, tenuous relationships to the truth, basement offices and easy access to unsuspecting clients who needed individual and business tax returns prepared. In this two-part column, we'll examine where each of these crooked tax preparers came from, how they defrauded their clients, and the dollars lost and misery found because of their respective yearslong crimes.

In this issue, we'll highlight the fabulous Bonnie G.

Bonnie G.'s résumé

In 1997, Bonnie was charged with felony theft over $2,500, convicted of a lesser offense of theft over $500 and then sentenced to probation. In 1999, Bonnie was charged with one count of check forgery and one count of offering a forged check; she was convicted on the check forgery charge in February 2000. Despite this new charge and conviction, she was discharged from probation on the $500 theft conviction in July 2000 with no indication of a probation violation on her record.

In 2003, Bonnie was charged with one count of felony theft by swindle and one count of felony theft over $2,500 and subsequently convicted on the theft by swindle count in April 2004.

Between 2004 and 2007, she faced hearings on three separate probation violations in the 1999 check forgery case, and warrants of commitment were issued each time; she was ultimately discharged from probation in this case in August 2008.

In September 2009, she faced a probation violation hearing in the 2003 "over $2,500" theft case, and her supervised probation was extended to 10 years. In 2013, she faced three separate hearings for a single probation violation, but this violation was ultimately dismissed late that year.

That, my friends, is just her criminal history related to honesty crimes. It doesn't detail the 12 civil filings against her, nor does it detail other, saltier criminal offenses. Already looks pretty up-market, doesn't she?

Well now. To get to "the case at bar" as we legal types like to say.

Basement tax preparer

Between 2009 and 2013, Bonnie ran a tax preparation, accounting and bookkeeping practice out of the basement of her home and annually realized business income of $148,000 to $206,000.

She registered as a corporation with the Minnesota secretary of state's office and listed herself and one of her adult daughters as directors and another adult daughter as CEO. The tax preparation side of Bonnie's business, which grew year by year, was predicated on a single principle: If you get them refunds, they will come (back).

Bonnie repeatedly and systematically prepared and filed hundreds of fraudulent and false returns with clients' grossly understated income so they'd be eligible for refunds.

The lies on her clients' tax forms included unusually and falsely high charitable donations; questionable unreimbursed employee expenses; false statements of business losses; false deductions (usually false or inflated child care expenses); and false listing of occupations — she changed many wage-based, humble occupations to high-paying sales occupations.

Bonnie also altered financial reports and statements given to her by clients, which she included in her filings to the Minnesota Department of Revenue. She falsely stated that one of her daughters, rather than herself, prepared one return. At least once she asked for a sample letterhead from a client's employer to provide a false letter stating a fictitious occupation and unreimbursed employee expenses to the department of revenue. Bonnie forged receipts from at least 11 area churches to falsely document claims of church donations for two couples.

She falsely reported the alleged sale of a couple's rental property by claiming a loss, which thereby reduced gross income calculations for both their income tax and property tax returns.

Bonnie also falsely reported a married couple as unmarried and not living together, which allowed the female filer to be claimed as head of household with dependent children. After the department of revenue contacted the couple for an audit, Bonnie encouraged them to concoct fake documents, which indicated they were divorcing and that the female had lived with her sister for the past five years. Bonnie also falsely reported the female filer as a paid Sunday school teacher and claimed $6,000 in business losses.

In keeping with The Fraudulent Tax Preparer Code of Lack of Ethics, Bonnie defrauded the state department of revenue in reporting her own individual and corporate income taxes. Despite grossing up to more than $200,000 annually from her businesses, between 2011 and 2014 (at least) Bonnie failed to file her individual income tax returns and/or corporate income tax returns, failed to pay required individual and/or corporate taxes, and filed false individual and/or property and/or corporate tax returns.

She also fraudulently claimed she was a sales representative, she didn't disclose any of her ongoing businesses and she seriously lowballed her income to qualify for refunds.

Bonnie also made false affirmative statements on these returns in which she claimed she only received Social Security Disability Insurance benefits and child support. (A search warrant later executed at her residence revealed loan application documents in which she highballed her income to qualify for a car loan. Or two.)

Many unhappy returns

State departments of revenue are beehives — teeming with diligent workers who are invisible to the outside world. In late 2012, auditors within the department of revenue noticed a few irregular returns filed by Bonnie G. as a tax preparer for other taxpayers and started comparing notes. They found a Big Red Flag in Audit-Land: an unusually high percentage of filed returns by the same preparer resulting in refunds for the taxpayer.

Because Bonnie filed these returns electronically, investigators were able to locate her through her ISP address. The department of revenue subsequently identified more than 380 questionable tax returns and estimated that the tax deficiencies for individual taxpayers and Bonnie would total more than $1.4 million. The department referred the case to the Hennepin County Attorney's Office's criminal investigations division.

Investigators and auditors began calling on Bonnie's taxpayer clients who contacted Bonnie. She held a mass meeting of her clients at her house and told them that "those SOBs are out to get me." Bonnie asked them for more actual and fabricated records, assured them she would "take care of" church donation receipts, and asked them to sign powers of attorney authorizing her to represent them in dealings with the department of revenue. Almost all of them bolted and called lawyers, new tax preparers and department of revenue criminal investigators.

Bonnie was ultimately charged with 34 counts of aiding/assisting/advising others in the filing of false or fraudulent tax returns, three counts of filing false or fraudulent returns on her own taxes, 15 counts of knowingly failing to file individual or corporate returns and willfully failing to pay taxes and one count of theft by swindle. 
By plea agreement, she was convicted of nine counts of aiding/assisting/advising others in the filing of false or fraudulent tax returns and eight counts of knowingly failing to file individual or corporate returns and willfully failing to pay taxes, for which she will spend approximately four years in prison.

And thus, Bonnie G's verse of this ballad is complete. In part two in the November/December issue, we'll hear Donnie Z's verse which, while simpler, is no less lyrical an argument for some kind, any kind, of tax-preparer regulation.

Annette Simmons-Brown, CFE, most recently was the senior paralegal at the Hennepin County Attorney's Office in Minneapolis, Minnesota. Her email address is: simmonsbrown22@msn.com.