Recent Developments

Another Tax Preparer Convicted

On June 10, 2011, the Toronto Star reported that a Brampton tax preparer was sentenced to three years in prison for preparing tax returns for clients using fake charitable donation receipts. Eric Ammah was a partner in E&F Tax Associates and Bankay Financial Services and was convicted for tax returns prepared for the 2004 through 2006 taxation years. Mr. Ammah was convicted for preparing tax returns for approximately 30 clients over those three years, which amounted to more than $34 million in fake charitable donation credits and more than $9 million in reduced taxes or refunds.

The clients were charged a percentage – in this case, 10% - of the amount of the charitable donations that were claimed. This should be a tip-off to other taxpayers who may have had their returns prepared by unscrupulous tax preparers. Any payment arrangement that is based on the percentage of the amount saved or claimed should raise a serious red flag, despite what the tax preparer may state.

The fraudulent tax preparers will say that this arrangement makes sense because both parties have the same interest – reducing the tax payable or maximizing the client’s refund. However, the interest of the tax preparer and the client are actually in conflict. The tax preparer’s interest is solely to maximize their income by maximizing the refund or minimizing the tax payable. However, the taxpayer’s interest is to minimize their tax payable or increase their refund as much as is legally possible – which is the so-called Duke of Westminster principle. Because the taxpayer faces all of the liability if there is any issue with the tax return, the tax preparer has an incentive to make reckless, grossly negligent or, worse, fraudulent claims. Further, a fraudulent tax preparer will likely understand that there is a lag between the time the returns are submitted and the time they are eventually reviewed by CRA. A tax preparer could prepare tax returns for 2 years and disappear, leaving the taxpayer to hold the bag.

If a taxpayer suspects that they have been a victim of a fraudulent tax preparer, that taxpayer should file a voluntary disclosure immediately as it may be the only opportunity to eliminate any penalties that may be applied.