Taxable Talk

Claude Verbal II wasn’t the most well liked owner of a home in North Raleigh, North Carolina. It seems that the 15,000 square foot mansion wasn’t used as a home; rather, it was a place to PARTY! To be fair, the parties appear to have been operated by Mr. Verbal’s ex-wife, Pamela Verbal. The local HOA probably has nothing to worry about as far as any additional parties. Besides an injunction issued by a local court, Mr. Verbal will need to sell the mansion (if it hasn’t already been sold).

You see, Mr. Verbal pleaded guilty earlier this year to a $6,460,962 tax and health care fraud scheme. He was sentenced last week to 135 months (11 years and 3 months) at ClubFed along with full restitution for one count of conspiracy to defraud the United States, one count of aiding and assisting the preparation of false tax returns, one count of healthcare fraud, and one count of money laundering.

In the tax fraud scheme, Mr. Verbal owned a tax preparation franchise with ten locations in North Carolina. Mr. Verbal and his employees offered customers a unique bonus system: If the return was falsified and the client paid cash, he would get a much larger refund. Mr. Verbal and his employees utilized familiar methods: fake dependents and phony credits. Mr. Verbal bought stolen identities so his scheme could continue.

It’s how the scheme was uncovered that makes this quite interesting. From the DOJ press release:

In November 2010, one of Verbal’s employees informed a U.S. probation officer of the fraudulent practices at NBT’s location on Fayetteville Street. The probation officer informed Verbal of this fraud and he falsely denied knowledge of it. Afterward, Verbal took steps to keep the profitable Fayetteville Street location open and to continue operating as usual, but to also further distance himself from the fraudulent practices. In order to do this, Verbal transferred the electronic filing privileges for that NBT branch to a nominee. Verbal and others jointly persuaded a relative of Verbal who allowed Verbal to use their name to apply for new electronic filing privileges for the Fayetteville Street location. In exchange, Verbal and his wife paid the relative $10,000, and the relative had no role in operating NBT, no professional tax experience and no knowledge of the fraud that was occurring at NBT.

But that’s not all. Besides owning a tax preparation firm, Mr. Verbal owned a Medicaid health provider in North Carolina. Mr. Verbal engaged in healthcare fraud, including changing diagnosis codes, inflating the number of clients treated, billing for services not rendered, and faking assessments.

From both schemes, Mr. Verbal used the proceeds to buy luxury goods and possessions, such as his party house in North Raleigh. Many of the items acquired by Mr. Verbal were seized during the investigation, including nearly $766,000 in cash and a 7-carat diamond ring.

As a reminder to anyone who is offered the chance to get a larger refund by paying in cash and having phony items added to his or her tax return: Don’t do it! If it sounds too good to be true it probably is. Not only is knowingly participating in such activities a crime, sooner or later you could get a “Dear Soon to be Audited Taxpayer” letter from the IRS.

There’s a common thread among these tax professionals: You’ll be getting a refund. That sounds good until you realize that you really shouldn’t have, and that you will likely get in trouble later.

Our first preparer might be saying, “Well, I did get two returns correct.” Unfortunately, the IRS and the US Department of Justice allege he get 74 others wrong. The DOJ asked a federal court to bar Ernice Joseph and his Miami tax preparation firms, Ebenezer Tax Services Inc and Primo Tax Service Inc, from preparing federal returns for others. Why? Here’s what the DOJ states:

The complaint alleges that Joseph and his businesses prepared returns that unlawfully claim the Earned Income Tax Credit by reporting fictitious businesses or business income on clients’ Schedule C – Profit or Loss From Business. Joseph and his businesses prepare returns that claim education and other credits to which the taxpayers are not entitled in order to overstate their refunds. According to the complaint, the Internal Revenue Service (IRS) examined 76 returns prepared by Joseph and/or Ebenezer Tax Services and found that 74 contained a deficiency. The complaint alleges that, altogether, Joseph and Ebenezer Tax Service’s activities may have caused more than $20 million in loss to the U.S. Treasury. In addition, the complaint alleges that the revenue lost from Primo Tax Service’s activities could exceed $25 million.

Our next preparer is one step further along than Mr. Joseph. William Naes of St. Charles, Missouri, was permanently barred from preparing returns for others. Why? Well, things were too good to be true:

The government alleged that Naes prepared returns that fraudulently claimed tax deductions for his customers, including bogus deductions for charitable contributions and unreimbursed employee business expenses. According to the complaint, Naes also fabricated business expenses on Schedules C-Profit or Loss From Business, concocted a fake business for at least one customer and failed to properly identify himself as the paid preparer on many of the returns he prepared.

Neither Mr. Joseph nor Mr. Naes appear to be under criminal indictment; our other two preparers weren’t so lucky. Julius Williams owned and ran his tax preparation business in College Park, Maryland. He catered to temporary workers from Jamaica. His clients got a great deal: Phony Schedule C businesses, phony deductions, phony Earned Income tax credits, and phony education credits led to real refunds. Mr. Williams did one nasty thing to those clients: He stole those ex-clients’ identities to help his current clients. After all, they were back in Jamaica, unlikely to file another US tax return, so why waste a good identity? Finally, Mr. Williams cheated on his own taxes. He pleaded guilty and must make restitution of $1 million; he’s also looking at a term at ClubFed.

Our final Bozo preparer is Daniel Jones of Fredericksburg, Virginia. Mr. Jones operated a business called Tax Doctor Plus. I use the past tense because Mr. Jones will be heading to ClubFed for the next 37 months. He did have a lot of satisfied clients: he used phony tax credits, phony Schedule C’s, phony Schedule A expenses, and phony W-2s to increase his clients’ refunds. He also falsely claimed to be a CPA.

Some common sense applies when you’re reviewing your tax return. First, always review it–don’t just sign it. And if it shows you worked at a business you didn’t or you have a credit for college education expenses when you attended college twenty years ago, there’s a problem. Remember, if it sounds too good to be true it probably is.