WrayCPA Business Solutions, Certified Public Accountant

04/12/2013

Tax Penalty for Early Distribution of Retirement Funds
Ten Percent Penalty for Early Distributions from a Retirement Account
By William Perez

Distributions from an IRA, 401(k) or other retirement plan generally must be included as part of your taxable income. Also, withdrawals from a retirement account may be subject to an additional tax of 10% if the distribution is made before you reach age 59.5 years old.

10% Penalty from Early Distributions from a Retirement Plan

If you withdraw money from a qualified retirement plan, you may be subject to an additional tax of 10%. This is penalty for taking an early distribution from an individual retirement account (IRA), 401(k), 403(b), or other qualified retirement plan before reaching age 59 1/2. There are exceptions to this 10% penalty. A little known fact is this penalty may apply to Roth IRAs, even if it has been at least five years since you first opened up your Roth account. For Roth IRA account holders, it will be crucially important to review the exceptions to the 10% penalty, as otherwise the Roth distribution could become subject to both tax and the 10% penalty.
Here's what you need to know about the early distributions and their tax consequences.

The additional tax on an early distribution is 10% of the taxable amount. The taxable amount is also included in your taxable income. This 10% tax is in addition to regular income taxes. I call this the early withdrawal tax penalty, because it is similar to the penalty banks charge when you liquidate a savings account early. You can avoid this additional tax penalty if you meet certain criteria, but you cannot avoid including your retirement withdrawal from your taxable income. So you will want to consider the tax impact before you tap your retirement accounts for short-term financial emergencies.

If you withdraw money from a SIMPLE IRA and you first began participating in a SIMPLE IRA plan within the past two years, then your early distribution penalty is 25% instead of 10%.

Reporting the Early Distribution Penalty

You figure the additional tax either directly on Form 1040 or on Form 5329 (pdf), depending on your particular tax situation. Please refer to the Instructions for Form 5329 (pdf) for all the details. Generally, you calculate the additional tax penalty directly on Form 5329 if you meet one of the exceptions and the retirement plan did not report the exception on Form 1099-R box 7.

Exceptions to the Early Distribution Penalties

You do not have to pay the additional 10% tax penalty on your early retirement distribution if you qualify for certain exceptions. There are two sets of exceptions. The first set below applies to individual retirement accounts (both traditional and Roth IRAs). The second set of exceptions applies to 401(k) and 403(b) retirement plans.
Exceptions for Early Distributions from an IRA:
• You had a "direct rollover" to your new retirement account,
• You received a lump-sum payment but rolled over the money to a qualified retirement account within 60 days,
• You were permanently or totally disabled,
• You were unemployed and paid for health insurance premiums,
• You paid for college expenses for yourself or a dependent,
• You bought a house*,
• You paid for medical expenses exceeding 7.5% of your adjusted gross income**, or
• The IRS levied your retirement account to pay off tax debts.
Exceptions for Early Distributions from a Qualified Retirement Plan such as a 401(k) or 403(b) plan:
• Distributions upon the death or disability of the plan participant.
• You were age 55 or over and you retired or left your job.
• You received the distribution as part of "substantially equal payments" over your lifetime.
• You paid for medical expenses exceeding 7.5% of your adjusted gross income.**
• The distributions were required by a divorce decree or separation agreement ("qualified domestic relations court order"),
* The home-buying exception has the following additional criteria: you did not own a home in the previous two-years, and only $10,0000 of the retirement distribution qualifies to avoid the tax penalty.
** You do not need to itemize in order to claim the medical expense exception.

If the exception is properly coded in box 7 of your 1099-R form, you do not need to fill out Form 5329. If an exception applies and is not recorded in box 7, then you need to fill out Form 5329.
1099-R Box 7 Distribution Codes

The following is a list of distribution codes that may appear in box 7 for Form 1099-R to report distributions from a retirement account. This list is taken from Instructions for Forms 1099-R & 5498 (PDF).
Distribution Codes for 1099-R Box 7
Distribution Code Meaning
1 Early distribution, no known exception
2 Early distribution, exception applies
3 Disability
4 Death
5 Prohibited transaction
6 Section 1035 exchange
7 Normal distribution
8 Excess contribution
9 Cost of life insurance protection
A May be eligible for 10-year tax option
D Excess contribution
E Excess annual additions
F Charitable gift annuity
G Direct rollover
J Early distribution from Roth IRA
L Loans treated as deemed distributions
N Recharacterized IRA contribution
P Excess contribution
Q Qualified distribution from a Roth IRA
R Recharacterized IRA contribution
S Early distribution from a SIMPLE IRA in the first two years, no known exception
T Roth IRA distribution, exception applies

04/12/2013

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02/06/2013

Ten Tips to Help You Choose a Tax Preparer

Many people look for help from professionals when it’s time to file their tax return. If you use a paid tax preparer to file your federal income tax return this year, the IRS urges you to choose that preparer carefully. Even if someone else prepares your return, you are legally responsible for what is on it.

Here are ten tips to keep in mind when choosing a tax return preparer:

1. Check the preparer’s qualifications. All paid tax return preparers are required to have a Preparer Tax Identification Number. In addition to making sure they have a PTIN, ask if the preparer belongs to a professional organization and attends continuing education classes.

2. Check on the preparer’s history. Check with the Better Business Bureau to see if the preparer has a questionable history. Also check for any disciplinary actions and for the status of their licenses. For certified public accountants, check with the state boards of accountancy. For attorneys, check with the state bar associations. For enrolled agents, check with the IRS Office of Enrollment.

3. Ask about service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers can. Also, always make sure any refund due is sent to you or deposited into an account in your name. Taxpayers should not deposit their refund into a preparer’s bank account.

4. Ask to e-file your return. Make sure your preparer offers IRS e-file. Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return. IRS has safely and securely processed more than one billion individual tax returns since the debut of electronic filing in 1990.

5. Make sure the preparer is accessible. Make sure you will be able to contact the tax preparer after you file your return, even after the April 15 due date. This may be helpful in the event questions arise about your tax return.

6. Provide records and receipts. Reputable preparers will request to see your records and receipts. They will ask you questions to determine your total income and your qualifications for deductions, credits and other items. Do not use a preparer who is willing to e-file your return by using your last pay stub before you receive your Form W-2. This is against IRS e-file rules.

7. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.

8. Review the entire return before signing. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.

9. Make sure the preparer signs and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. The preparer must also give you a copy of the return.

10. Report abusive tax preparers to the IRS. You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or altered a return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. Download the forms on the IRS.gov website or order them by mail at 800-TAX-FORM (800-829-3676).

01/28/2013

Who Should File a 2012 Tax Return?

If you received income during 2012, you may need to file a tax return in 2013. The amount of your income, your filing status, your age and the type of income you received will determine whether you’re required to file. Even if you are not required to file a tax return, you may still want to file. You may get a refund if you’ve had too much federal income tax withheld from your pay or qualify for certain tax credits.

Even if you’ve determined that you don’t need to file a tax return this year, you may still want to file. Here are five reasons why:

1. Federal Income Tax Withheld. If your employer withheld federal income tax from your pay, if you made estimated tax payments, or if you had a prior year overpayment applied to this year’s tax, you could be due a refund. File a return to claim any excess tax you paid during the year.

2. Earned Income Tax Credit. If you worked but earned less than $50,270 last year, you may qualify for EITC. EITC is a refundable tax credit; which means if you qualify you could receive EITC as a tax refund. Families with qualifying children may qualify to get up to $5,891 dollars. You can’t get the credit unless you file a return and claim it. Use the EITC Assistant to find out if you qualify.

3. Additional Child Tax Credit. If you have at least one qualifying child and you don’t get the full amount of the Child Tax Credit, you may qualify for this additional refundable credit. You must file and use new Schedule 8812, Child Tax Credit, to claim the credit.

4. American Opportunity Credit. If you or someone you support is a student, you might be eligible for this credit. Students in their first four years of postsecondary education may qualify for as much as $2,500 through this partially refundable credit. Even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student. You must file Form 8863, Education Credits, and submit it with your tax return to claim the credit.

5. Health Coverage Tax Credit. If you’re receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, you may be eligible for a 2012 Health Coverage Tax Credit. Spouses and dependents may also be eligible. If you’re eligible, you can receive a 72.5 percent tax credit on payments you made for qualified health insurance premiums.

01/26/2013

CPAs play an integral role in society. From Main Street to Wall Street, CPAs help businesses grow, understand their financials and are the most objective financial expert.

12/04/2012

Individual Tax Provisions Expiring at the End of 2012
Changes to Individual Tax Rates

1. Social Security Taxes
Social Security taxes are scheduled to increase on January 2013. Currently employees pay 4.2% of their wages, and self-employed persons pay 10.4% of their net self-employed income. In 2013, the Social Security tax rate will revert to its normal rate of 6.2% for employees and 12.4% for the self-employed. The Social Security wage base will also be increasing for 2013 to $113,700.

2. Personal Income Tax Rates
Ordinary tax rates on personal income are scheduled to revert to their pre-2001 levels. From 2001 through 2012, there are six tax rates ranging from 10% to 35%, which were implemented through Economic Growth and Tax Relief Reconciliation Act in 2001. For 2013, there will be five tax rates ranging from 15% to 39.6%. The lowest 10% tax rate will be eliminated and collapsed into a larger 15% tax bracket; in other words, the new 15% bracket for 2013 will encompass what in 2012 is the 10% and 15% brackets. The current 25% bracket will be replaced by a new 28% rate; the current 28% bracket will become 31%; the current 33% bracket will become 36%, and the current 35% bracket will become 39.6%. Furthermore, the 15% tax bracket for married couples filing jointly will no longer be double the 15% tax bracket for single filers.

3. Capital Gains Tax Rates
Long-term capital gains are taxed either at zero percent or at 15% for 2012. The tax rate on long-term gains is scheduled to revert in 2013 to a rate of 20%; a lower 10% rate would apply for individuals in the 15% tax bracket. We would also see the re-emergence of an 18% capital gains tax rate on assets held longer than five years; or 8% for individuals in the new 15% tax bracket.

4. Dividend Tax Rates
Dividends will be taxed at ordinary tax rates, which will range from 15% to 39.6%. The distinction between ordinary dividends and qualified dividends will be dropped after 2012. The Jobs and Growth Tax Relief Reconciliation Act introduced the concept of qualified dividends, which are taxed at the same rate that applies to long-term capital gains. Additionally, dividend income will be subject to a new Medicare surtax on unearned income at a rate of 3.8% starting in 2013.

5. Alternative Minimum Tax
Exemption amounts for the Alternative Minimum Tax are scheduled to decrease from $48,450 (2011 exemption for a single person) to $33,750 (2012 exemption amount). Exemption amounts for alternative minimum tax are set by law rather than being indexed to inflation, resulting in frequently legislative changes known as "AMT patches" to adjust the exemption amounts.

Changes Impacting Deductions
6. Standard Deduction
Currently, the standard deduction for married couples filing jointly is exactly double that of a single person. For 2012, a single filer has a standard deduction of $5,950 and a married couple filing jointly has a standard deduction of $11,900. The IRS has not yet released standard deduction amounts for 2013. If this provision expires, the standard deduction for joint filers will be less than double the standard deduction for single filers, and the standard deduction for separate filers will be less than the amount available for single filers.

7. Personal Exemptions
Starting in 2013, the amount that can be deducted for personal exemptions will become subject to phase-out limitations for higher income individuals. The amount of personal exemptions that can be deducted is gradually reduced or phased-out if a person's adjusted gross income (AGI) exceeds a certain threshold amount. The personal exemption is reduced by two percent for each $2,500 (or fraction thereof) by which AGI exceeds the threshold. (For married couples filing separate returns, personal exemptions are reduced by two percent for each $1,250 by which AGI exceeds the threshold.) The phase-out rule has not been in effect for the years 2010, 2011 and 2012. The IRS has not yet released personal exemption and phase-out amounts for the year 2013.

8. Limitation on Itemized Deductions
Higher-income persons may see their overall itemized deductions limited starting in 2013. Known as the Pease limitations, this provision limits the total amount that can be deducted as an itemized deduction for individuals with adjusted gross income (AGI) over a certain threshold amount. " Itemized deductions are reduced by the lesser of 3% of the taxpayer's AGI over the threshold amount or by 80% of otherwise allowable itemized deductions. The Pease limitations on itemized deductions were not in effect for the years 2010, 2011 and 2012.

9. Student Loan Interest Deduction
Individuals can deduct interest paid on student loans up to $2,500 per year, and the amount of the deduction phases out based on income. Starting with the year 2013, student loan interest will be tax-deductible only for the first 60 months of repayment.

Changes Impacting Tax Credits
10. Child Tax Credit
Currently families may qualify for a child tax credit of up to $1,000 per dependent child under the age of 17. Starting in 2013, the maximum child tax credit is scheduled to be $500 per eligible child.

11. Child and Dependent Care Tax Credit
Currently, the child and dependent care tax credit is worth up to $3,000 for one dependent or up to $6,000 for two or more dependents, with the tax credit being worth up to 35% of eligible day care expenses. For 2013, these amounts are scheduled to be reduced to 30% of eligible expenses, with the maximum tax credit worth $2,400 for one dependent and $4,800 for two or more dependents.

12. Earned Income Tax Credit
The earned income tax credit (EITC) has been enhanced several times from 2001 to 2012 to provide for higher tax credits based on having three or more children, increasing the phaseout range for married couples filing jointly, and expanding the IRS's math-error authority for dismissing EITC claims that the IRS deems erroneous without the IRS first needing to issue a notice of deficiency. These changes to the EITC are scheduled to expire at the end of 2012. For 2013, there will be no additional EITC for three or more dependents, and married couples may see a reduction in the amount of their earned income credit.

13. Adoption Tax Credit
Currently, parents may qualify for a tax credit of up to $12,650 for adopting a child. For 2013, the amount of the adoption credit is scheduled to be reduced to a maximum of $5,000, or $6,000 for adopting a child with special needs.

14. American Opportunity Tax Credit
The American Opportunity Tax Credit is in effect for the years 2009 through 2012 and provides a tax credit of up to $2,500 for students in their first four years of post-secondary education. The credit calculated based on 100% of the first $2,000 of qualifying education expenses and 25% of the next $2,000 of expenses. For the purpose of the American Opportunity credit only, qualified education expenses include tuition and related course materials such as books. The American Opportunity credit is scheduled to expire at the end of 2012. For 2013, it will be replaced by the HOPE tax credit, which existed prior to 2009. The HOPE credit is available only for the first two years of post-secondary eduction. The HOPE credit is worth 100% of the first $1,000 of tuition expenses and 50% of the next $1,000 of tuition expenses, for a maximum credit of $1,500.

15. Refundable Credit for Prior Year Minimum Tax
Taxpayers with carryover credits resulting from alternative minimum tax (AMT) paid more than three years ago can seek a refund of such long-term but as yet unused carryover amounts as a tax credit. The refundable AMT credit expires at the end of 2012. For 2013, the AMT credit will still be available, but the special provision for long-term carryover credits will sunset.
Changes Impacting Education-Related Tax Benefits

16. Employer-Provided Tuition Assistance
Employers can provide assistance with college tuition and education-related expenses for employees. Up to $5,250 per year can be provided for undergraduate or graduate education and is fully excluded from taxes. Starting 2013, graduate education will no longer qualify for the tax-exclusion.

17. Coverdell Education Savings Accounts
Individuals can save up to $2,000 through a Coverdell Education Savings Account (also known as Education Individual Retirement Accounts). Savings contributions are not tax-deductible, the accounts are exempt from current taxation, and distributions from the account are tax-free as long as the funds are used for education-related expenses. Qualifying expenses for Coverdell accounts include expenses for primary and secondary education as well as for post-secondary education. Starting in 2013, the amount that can be contributed to a Coverdell Education Savings Account will fall from $2,000 to $500 per beneficiary. Also, expenses for primary and secondary education will no longer qualify for tax-exempt distributions from a Coverdell account.

18. National Health Service Corps & Armed Forces Health Professions Scholarships
Scholarships received from the National Health Service Corps Scholarship Program and from the F. Edward Herbert Armed Forces Health Professions Scholarship & Financial Assistance Program have been tax-exempt from 2001 to 2012. Starting in
2013, scholarships received under these two programs will become taxable.

Changes to Income Exclusions
19. Cancellation of Debt Income on Home Foreclosures
Debt that are forgiven or canceled are generally considered taxable income. A notable exception for the years 2007 through 2012 has been available for individuals whose mortgage debt is canceled as a result of a foreclosure, short sale or mortgage restructuring. In those cases, the mortgage debt forgiveness can qualify to be exempt from the income tax. This special provision expires at the end of 2012. For 2013, mortgage debt that is canceled by a lender as part of a loan restructuring or foreclosure or short sale will be taxable, unless other exception applies.

20. Tax Refunds Disregarded in Federal Assistance Programs
Tax refunds are not counted as income and not counted as financial resources for the purpose of determining eligibility for benefits for any Federal program or state programs that are funded by the federal program. This special provision expires at the end of 2012.

11/21/2012

Six Year-End Tax Strategies in Light of the Fiscal Cliff
By William Perez

Joe Kristan of Roth & Co. PC provides some advice for business owners concerned about how the "fiscal cliff" negotiations in Congress may impact year-end tax planning.
Mr. Kristan begins by laying out what is known about 2013 taxes (namely the new Unearned Income Medicare Contribution Tax) and what is not yet known about 2013 (which is a lot, including what the marginal tax rates will be) and what is not yet known about 2012 (namely whether the alternative minimum tax parameters will be revised upwards). From this foundation of what's known and not yet known, Mr. Kristan lays out six possible year-end tax planning tactics:
"Accelerating income and deferring deductions." A reversal of the usual strategy, taxpayers may want to attempt to book income at known 2012 tax rates that could possibly be lower that tax rates in effect for 2013.

"Examine the timing of capital gain income."What's at stake is the potential elimination of the zero-percent capital gains tax rate for modest-income taxpayers and for higher-income individuals the possibility of higher tax rates and the new Medicare surtax.

"Consider electing out of installment sales." The idea here is to accelerate income into 2012 at tax rates that potentially could be lower in 2012 compared to future years. This works if you are selling an asset in 2012 on an installment sale. It can also work for installment sales from previous years if the buyer accelerates payments into 2012.

"Dividend distributions." Entrepreneurs running their business through a C-corporation or S-corporation may want to distribute dividends in 2012 in an effort to avoid the Medicare surtax that would apply if those same funds were distributed in 2013.

"Fixed asset elections." Mr. Kristan is referring to the ability to write off the entire expense for equipment purchases using the section 179 deduction as opposed to spreading out the deduction over multiple years using regular depreciation. This tax planning technique can be safely postponed until after the year when you are working on your tax return. By then, the "fiscal cliff" negotiations ought to be over, and you'll be able to model out the tax impact of depreciation decisions more accurately. But any fixed assets would need to be purchased and placed in service before the end of the year in order to qualify for either section 179 or regular depreciation.

"Family gifting." Currently, there's a $5 million lifetime cap on personal gifts, which is scheduled to become $1 million in 2013. Individuals may be able to give away a larger portion assets without any gift tax liabilities. This tactic may be helpful for reducing exposure to theMedicare surtax that will take effect in 2013, in addition to any estate and gift tax considerations.

11/20/2012

The Fiscal Cliff Explained

“Fiscal cliff” is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

Among the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, the end of the tax cuts from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect. According to Barron's, over 1,000 government programs - including the defense budget and Medicare are in line for "deep, automatic cuts."

In dealing with the fiscal cliff, U.S. lawmakers have a choice among three options, none of which are particularly attractive:
• They can let the current policy scheduled for the beginning of 2013 – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – go into effect. The plus side: the deficit, as a percentage of GDP, would be cut in half.
• They can cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The flip side of this, of course, is that the United States' debt will continue to grow.
• They could take a middle course, opting for an approach that would address the budget issues to a limited extent, but that would have a more modest impact on growth.

Possible Effects of the Fiscal Cliff:
If the current laws slated for 2013 go into effect, the impact on the economy could be dramatic. While the combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion, the CBO estimates that the policies set to go into effect would cut gross domestic product (GDP) by four percentage points in 2013, sending the economy into a recession (i.e., negative growth). At the same time, it predicts unemployment would rise by almost a full percentage point, with a loss of about two million jobs. A Wall St. Journal article from May 16, 2012 estimates the following impact in dollar terms: “In all, according to an analysis by J.P. Morgan economist Michael Feroli, $280 billion would be pulled out of the economy by the sunsetting of the Bush tax cuts; $125 million from the expiration of the Obama payroll-tax holiday; $40 million from the expiration of emergency unemployment benefits; and $98 billion from Budget Control Act spending cuts. In all, the tax increases and spending cuts make up about 3.5% of GDP, with the Bush tax cuts making up about half of that, according to the J.P. Morgan report.” Amid an already-fragile recovery and elevated unemployment, the economy is not in a position to avoid this type of shock.

The cost of indecision is likely to have an effect on the economy before 2013 even begins. The CBO anticipates that a lack of resolution will cause households and businesses to begin changing their spending in anticipation of the changes, possible reducing GDP before 2012 is even over.

Having said this, it's important to keep in mind that while the term “cliff” indicates an immediate disaster at the beginning of 2013, the impact of the changes - while destructive over a full year - will be gradual at first. What's more, Congress can act to change laws retroactively after the deadline. As a result, the fiscal cliff won't necessarily be an impediment to growth even if Congress doesn't address the issue until after 2013 has already begun.

Source: By Thomas Kenny, About.com Guide.

10/25/2012

Internal Revenue Service

Don't Fall for Phony IRS Websites

The Internal Revenue Service is issuing a warning about a new tax scam that uses a website that mimics the IRS e-Services online registration page.

The actual IRS e-Services page offers web-based products for tax preparers and payers, not the general public. The phony web page looks almost identical to the real one.

The IRS gets many reports of fake websites like this. Criminals use these sites to lure people into providing personal and financial information that may be used to steal the victim’s money or identity.

The address of the official IRS website is www.irs.gov. Don’t be misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov.

If you find a suspicious website that claims to be the IRS, send the site’s URL by email to [email protected]. Use the subject line, 'Suspicious website'.

Be aware that the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

If you get an unsolicited email that appears to be from the IRS, report it by sending it to [email protected].

The IRS has information at www.irs.gov that can help you protect yourself from tax scams of all kinds. Search the site using the term “phishing.”

10/18/2012

California Tax Preparer Sentenced to 5 Years in Jail

Ernesto Jesus Suarez, 61, of Orange, Calif., was also sentenced to three years’ probation by Judge Stephen V. Wilson in a Los Angeles federal court and ordered to pay total restitution of $753,477.

Suarez pleaded guilty in June to preparing and filing hundreds of tax returns, including his own, that claimed inaccurate and false items on his taxpayer-clients’ returns. Suarez allegedly collected over $672,478 in stolen tax refunds from the IRS and $80,729 from the Franchise Tax Board (see IRS Stops Tax Preparers Accused of Stealing Client Refunds).

According to the plea agreement, Suarez would meet clients at their homes and prepare a largely accurate income tax return on his laptop. If the client was due a refund, Suarez would give the client a check from his personal checking account in the amount stated on the accurate return and misrepresent to the client that he would file the accurate return with the IRS.

Later, Suarez would prepare a false tax return, including fictitious items such as false spouses, dependents, child or dependent care, and education expenses, in order to increase the refund amount. Suarez would forge the signature of the taxpayer and then mail the false tax return to the IRS. He would then direct the inflated refunds to be deposited into 29 different bank accounts that he controlled.

Also according to the plea agreement, Suarez admitted that he used a similar scheme for himself on his 2008 federal income tax return, claiming a fictitious spouse and dependent. Suarez also admitted that he failed to report his true income from his tax return business and the illegal refunds he received.

A civil injunction order permanently barring Suarez from preparing tax returns for others was signed in June by Judge Cormac J. Carney of the U.S. District Court for the Central District of California. The order also prohibits Suarez from representing clients before the IRS and from aiding, advising, or assisting in the preparation of federal tax returns for life.

As part of his plea agreement, Suarez agreed to publish the civil injunction to all of his current clients. The investigation was conducted by the U.S. Attorney’s Office in Los Angeles and the Internal Revenue Service’s Criminal Investigation division.