FEDERAL JUDGE SHUTS DOWN TWO DALLAS TAX PREPARERS

One Firm’s Owner Allegedly Taught Employees to Fabricate Phony Businesses for Customers in Order to Claim Bogus Deductions

WASHINGTON – A federal court has shut down two Dallas tax preparers during the height of tax-filing season, the Justice Department announced today. Chief Judge Sidney Fitzwater of the U.S. District Court for the Northern District of Texas signed a temporary restraining order barring Ethel Washington from preparing any tax returns. The court found that Washington continually and repeatedly prepared federal tax returns with false or inflated Schedule C business losses, even after the Internal Revenue Service (IRS) notified her that it was investigating her return preparation. The court noted that Washington has prepared returns with false or inflated business losses since 2004, and has already prepared 120 returns with claimed business losses during this tax-filing season, some of which were false or inflated. Washington operates Washington Income Tax Service in Dallas.

The court has also permanently barred Washington’s former employer, Tina Preston, and her firm, The Preston Group & Associates Inc., from preparing federal tax returns. Preston consented to the civil injunction order. The court required Preston to provide her customer list to the Justice Department and to post a copy of the court order on her website.

According to the government complaint, filed in the case last month, Preston Tax Services prepared federal income tax returns for thousands of individual customers. Tina Preston allegedly taught employees, including Ethel Washington, how to list phony businesses on customers’ returns in order to report false business losses to offset customers’ wage income. The complaint further alleged that the defendants sometimes used phony businesses to increase customers’ income in order to claim improper earned income tax credits, a benefit that is available under some circumstances to working people in certain income ranges. According to the complaint, the tax losses from the defendants’ misconduct could be as much as $60 million. The case against several other defendants remains pending.

“The court’s swift action shows that tax preparers can face serious consequences for misconduct,” said John A. DiCicco, Acting Assistant Attorney General for the Justice Department’s Tax Division. “The IRS and Justice Department are committed to putting fraudulent preparers out of business.”

DiCicco thanked Justice Department trial attorney Michael Pahl, who handled the case, and Glenda Dziema, a revenue agent with the IRS’s Small Business/Self Employed Division, who handled the investigation.

In the past decade the Justice Department has obtained injunctions against more than 380 tax preparers and tax-fraud promoters. Information about these cases is available on the Justice Department Web site.