Every year during tax season, various forms of fraud cause losses totaling billions of dollars to American taxpayers. Criminals take advantage of taxpayers’ desire to pay less taxes and implement fraudulent schemes.
The Internal Revenue Service (IRS) mandates that most income is taxable, including unemployment benefits, interest income, certain foreign asset income, as well as income from the gig economy and digital assets.
For taxpayers, whether it’s using ghost tax preparers promising large refunds, hastily submitting tax returns based on misleading advice from social media, choosing the wrong tax preparer, or intentionally or unintentionally filing fraudulent forms with false deduction information, they can fall into abusive tax avoidance schemes or become victims of tax fraud cases.
According to IRS statistics, in just 2022, taxpayers lost $5.7 billion due to tax fraud. As fraud becomes increasingly rampant, the US government is intensifying efforts to scrutinize erroneous tax forms and prosecute companies and individuals who submit false tax returns for clients.
In mid-June, Salvador Gonzalez from Corona, Southern California, admitted to preparing and submitting false tax returns for clients.
According to court documents and statements, Gonzalez has been operating a company called Grace’s Lighthouse Resource Center Inc. since 2013. Since then, he has handled over 11,000 tax returns requesting over $38 million in refunds from the IRS.
Gonzalez’s modus operandi involved instructing clients (taxpayers) to create a fictitious company and transfer ownership of personal property like homes, cars, and other assets to this fake company. After clients completed these steps, Gonzalez would introduce them to another partner who would provide business tax forms for these fake companies.
Next, clients would, following Gonzalez’s instructions, input so-called “business expenses” like mortgage payments, car loans, utility bills, etc., into a blank electronic form. Gonzalez’s partner would use this expenditure sheet to show losses for clients’ fake companies.
Once the tax forms for the fake companies were completed, Gonzalez would include the fraudulent losses in clients’ personal income tax returns to offset their personal income. To minimize clients’ tax payments, Gonzalez also falsified deductions on personal tax returns, such as unclaimed employee expenses, cash donations to charities, medical and dental expenses.
The US Department of Justice revealed that due to Gonzalez’s fraudulent tax practices, his clients ended up paying less taxes than they owed, and he profited from this behavior.
Before 2019, he typically charged a flat fee of $500 per tax return. In 2019, he started charging 1% of clients’ total income as a service fee.
Gonzalez has now pleaded guilty to three counts of aiding and assisting in the preparation of false tax returns, each count carrying a maximum sentence of three years in prison. He may also face supervised release, restitution, and fines. A federal district court judge will render a verdict on October 7.
The IRS Criminal Investigation Division is further probing this case. Meanwhile, the IRS has recently frozen some taxpayers’ refund requests, partly due to taxpayers hastily filing returns, making false claims, or participating in tax fraud schemes.
The IRS cautions that whether a taxpayer is knowingly evading taxes or falling victim to tax scams, anyone attempting to obtain significant refunds by abusing wage information or falsely claiming deductions on tax forms may face hefty penalties and criminal liability.