JUSTICE DEPARTMENT SUES FRAUDULENT TAX RETURN PREPARERS

Suit Alleges that Southern California Men Prepared Fraudulent Tax Returns Claiming Bogus Deductions

WASHINGTON, D.C. - The Justice Department Tax Division, working with the U.S. Attorney's Office in Los Angeles, filed suit today in federal court in Orange County, Calif., to stop five southern California men and Western Tax Services, Inc., from preparing federal income tax returns. The complaint alleges that Western Tax Services; Samuel DeAngelo of Yorba Linda, Calif.; Joseph Gordon Shields of Orange, Calif.; Alan M. Hovey of Cathedral City, Calif.; Jeffery R. Wright of Anaheim, Calif.; and Kelly David of Newport Beach, Calif., have repeatedly prepared tax returns for their customers claiming bogus deductions, including false and inflated deductions for charitable contributions, home offices and business expenses.

DeAngelo allegedly owns and operates Western Tax Services and acted as a return preparation coach and trainer for the other men.

"Unscrupulous return preparers cheat all honest taxpayers and tax advisers who play by the rules," said Eileen J. O'Connor, Assistant Attorney General in charge of the Justice Department's Tax Division in Washington. "Shutting down fraudulent tax schemes is a high priority for the Justice Department and the Internal Revenue Service."

According to court papers, almost all of the tax returns prepared by DeAngelo's company resulted in refunds, so that the company's business grew rapidly by word of mouth. In this way, DeAngelo and his associates allegedly targeted their "services" primarily at middle income wage earners and many military personnel in Orange and San Diego counties. More than 90 percent of the returns examined by the IRS that were prepared by DeAngelo's company under reported customers' tax liabilities.

Papers filed by the Justice Department cite numerous instances of alleged abuse by DeAngelo and his associates. In one typical example, DeAngelo's associate Joe Gordon Shields allegedly charged a couple $1,500 to prepare their tax return, on which Shields then included $1,000 in false charitable contributions deductions and over $13,000 in bogus employee expense deductions. The IRS has examined the tax return and determined that the couple owes over $8,000 in unpaid taxes and interest. According to an IRS estimate contained in the court papers, tax returns prepared by DeAngelo and his associates in a similar manner may have cost the taxpaying public over $31 million.

Tax evasion scams, including fraudulent tax return preparation, cost taxpayers billions of dollars every year. According to a General Accounting Office report (GAO-02-733) issued last year, however, stepped-up efforts by the IRS and Justice Department to crack down on these scams have led to increasing numbers of convictions of tax fraud promoters. The report can be found online at http://www.gao.gov/new.items/d02733.pdf.

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