US DoJ Obtains 200th Injunction In Tax Fraud Crackdown

by Leroy Baker, Tax-News.com, New York

15 August 2006

The US Justice Department announced last week that a preliminary injunction ordered by a federal judge in Michigan is the 200th injunction the Department has obtained since it launched its five-year initiative to crack down on the promotion of tax fraud schemes and the preparation of false or fraudulent tax returns.

The case that resulted in the 200th injunction bars Joyce M. Stone, her son Charles J. Freed and their company, Stone and Associates, all of Hillsdale, Mich., from preparing any income tax returns for another person or entity.

According to the government’s complaint in the case, Stone and Freed prepared customers’ income tax returns claiming improper deductions. Government filings and an IRS audit of returns prepared by Stone, Freed and another defendant, and cited by the court in its opinion, showed that the defendants understated their customers’ tax liability by an average of nearly $6,300 per return. The court noted that Stone, Freed and a third defendant have prepared more than 3,000 returns for customers since the start of 2005, including 1,786 in 2006.

Assistant Attorney General Eileen J. O’Connor, who has spearheaded the Department's crackdown since 2001, commented:

“With each passing day, tax fraud promotions - including fraudulent return preparation - can ensnare more customers and cost the federal Treasury and honest taxpayers more and more in unpaid taxes and fraudulently obtained refunds. It makes sense to shut down these activities as quickly as possible."

The Department has used both criminal and civil procedures to apprehend those suspected of promoting dubious tax avoidance schemes. In the latest case, the DoJ used a civil injunction, a court order prohibiting a party from a specific course of action.

“Injunctions are an important component of our overall program to reduce tax fraud. They put the unscrupulous tax preparers on notice that the government is on to them and will take further action as appropriate,” explained IRS Commissioner Mark W. Everson.

During the past five years, the DoJ Tax Division has obtained injunctions barring the promotion and use of tax fraud schemes that include falsely reporting “zero income” on tax returns; failing to withhold, report and pay payroll and income taxes; and using trusts to conceal ownership or control of assets.

Additionally, injunctions were obtained for falsely claiming that Native American casino gaming proceeds are tax exempt; falsely claiming that only income from foreign sources is taxable; using a “corporation sole” to avoid tax; and purporting to pay employees in commodities such as milk.

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