Canada Warns Illegal Tax Professionals

by Mike Godfrey, Tax-News.com, Washington

19 March 2010

With 'Fraud Prevention Month' well underway in Canada, Keith Ashfield, Minister of National Revenue sent out a warning to illegal tax preparers and promoters who try to make money at the expense of Canadian taxpayers.

"Canadians should know that honest tax preparers and promoters are an important part of the tax system, and that the vast majority are professionals who fully respect tax laws. But there are some who engage in fraudulent activity," said Ashfield. "Our government is committed to protecting taxpayers; we want Canadians to be educated about different types of fraudulent activity and know that unscrupulous third parties who victimize law abiding citizens can be severely penalized under the law."

Tax preparers provide tax-related services, including the preparation of tax returns on behalf of taxpayers, while promoters are planners of tax arrangements sometimes holding information seminars on specific tax schemes enticing taxpayers to participate.

Under Canadian law, promoters and other third-party representatives are penalized when they make false statements involving schemes that are against the law. Currently, there are 71 audits involving promoters. Recent examples include a scheme involving Registered Retirement Savings Plans, for which the promoter was assessed a penalty of CAD1.8m, and a tax shelter gifting arrangement case where the Canada Revenue Agency (CRA) proposed two penalties of CAD24m against the promoters involved.

Tax preparers can be penalized when they knowingly make false statements on their clients’ tax returns, such as including false deductions or not including all of their clients' income. Since 2000, 19 tax preparers have been assessed nearly CAD1.7m in third-party penalties. Audits of 15 tax preparers are currently underway.

Since third-party penalty legislation was introduced in June 2000, close to 100 third-party penalty audits are either in progress or have been completed. In addition to undergoing civil penalties, some are facing criminal prosecution. In situations where third parties have been involved in tax shelter gifting arrangement schemes, the CRA has revoked the registration of 33 participating charities.

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