Tax return preparer defense attorney, David M. Garvin, is a Florida Bar certified tax specialist. Mr. Garvin represents tax preparers accused of tax fraud. Mr. Garvin holds a LLM in taxation and is a CPA. He is a two time winner of the prestigious Daily Business Review "Most Effective Lawyer" award, 2014 and 2010. Mr. Garvin has been selected by "Best Lawyers in America"and "America's Top 100 Criminal Defense Attorneys" as one of the nation's very best.
He has been determined to be a "Top 3 Tax Attorney in Miami for 2020." Mr. Garvin has been selected by "Super Lawyers" for 12 consecutive years. He has an AVVO rating of "Superb" and a Martindale Hubbell rating of "AV" which is the highest rating. David M. Garvin has been consistently selected for inclusion in the "Bar Register of Preeminent Lawyers". Mr. Garvin has concentrated his practice on tax fraud and economic crimes defense for over 35 years.
A growing number of tax preparers are under investigation for alleged tax fraud. The Internal Revenue Service is responsible to collect the funds upon which the country depends to function. Somewhere along the way Congress decided to use the Internal Revenue Code to influence social behavior.
For example, if they wanted more people to buy real estate, they revised the Internal Revenue Code to permit a real estate tax deduction, etc. Eventually, politicians realized that they could use the Internal Revenue Code to get public support and votes by passing legislation that authorizes "Refundable Credits" to certain taxpayers.
Samples of refundable credits are:
These refundable credits actually are not refunds of any taxes paid in during the year. Instead, they are a payment even if the taxpayer has not paid any taxes. The policy of giving money to taxpayers who have not paid in any taxes has led to a large amount of fraud. Instead of collecting taxes to be used by the government to operate the country, the IRS has been forced to disperse funds to taxpayers who claim these credits on their tax returns.
The amount of fraud by taxpayers is so prevalent in this area the IRS is now forcing tax return preparers to be de facto law enforcement agents while they are preparing tax returns for the public. Treasury Department Circular No. 230 Section 10.34 provides the standards with respect to the preparation of tax returns and other papers. Section 10.34 (d) provides that a tax practitioner preparing a tax return "generally may rely in good faith without verification upon information furnished by the client."
However, now preparing a tax return in good faith no longer is good enough. The IRS may issue penalties against the tax preparer for not conducting "due diligence" when including refundable credits on a taxpayer's tax return. The IRS can conduct due diligence audits on the tax preparer for some or all of the tax preparers' clients.
During these audits the IRS auditor will often begin by demanding a complete list of the names, addresses and social security numbers of all of the tax returns that the tax preparer prepared during the past 12 months. Upon receipt of the list the auditor will schedule a date to conduct the audit at the tax preparer's office. When the auditor arrives the auditor will demand the tax preparer produce a sample of 25 to 50 files of client's that the auditor has selected.
The IRS auditor will review each file to see whether the tax return preparer documented the due diligence the tax preparer preformed while preparing the taxpayer's tax return. If the due diligence is not written in the file of the individual taxpayer the IRS agent will treat the tax preparer as having failed to conduct that particular element of due diligence.
Generally, there are four recognized areas of due diligence that the tax return preparer must perform and document for each tax return he prepares. The IRS auditor will assess a penalty for each due diligence category that is not documented in writing in the client's file by the tax return preparer.
This is only an example.
Each audit may involve a different number of tax returns and a different amount of fines. The stated objective of the IRS is to reduce tax fraud of taxpayers and tax return preparers. If at anytime during a due diligence audit the IRS agent suspects fraud he may refer the case for criminal investigation and prosecution. This often results in tax preparers and taxpayers disagreeing over who is responsible for the tax credits taken on the tax return.
Section 6694 of the Internal Revenue Code addresses understatements of taxpayer's liability by tax return preparers. Section 6694 provides that an understatement due to unreasonable positions taken by a tax preparer, that the preparer knew (or reasonably should have known) was unreasonable, shall result in a penalty equal to the greater of $1,000 or 50% of the income derived (or to be derived) by the tax return preparer with respect to the return or claim.
An unreasonable position is a position that does not have substantial authority. If the understatement is due to willful or reckless conduct, the preparer shall pay a penalty with respect to each such return or claim an amount equal to the greater of $5,000, or (B) 75% of the income derived (or to be derived) by the tax return preparer with respect to the return or claim. If a return preparer prepared 100 tax returns in which he willfully took an unreasonable position the potential penalty could be $500,000.
When a preparer penalty under Section 6694 is propsed by the auditor, the tax return preparer has the right to request independent review by an IRS appeals officer. This is normally done by filing a protest to the proposed preparer penaties within 30 days of the auditors notice. If the tax return preparer is unsucessful in convincing the Appeals officer to eliminate the preparer penalties the return preparer may pay 15% of the penalty within 30 days of the notice of the finding by Appeals and file a formal claim for refund. A lawsuit must be filed in U.S. District Court, the earlier of, within 30 days of the IRS denying the claim for refund or six months and 30 days from the date the claim for refund was filed. If the return preparer misses these dates, he will be required to pay the entire penalty and file a claim for refund within 3 years.
We the Jury unanimously find as follows as to the the Defendant, Noe Mompoint:
Noe Mompoint operated a successful tax preparation company for years. He always thought of himself as a person who did things the right way. In 2014, Mr. Mompoint was very disappointed to learn that he was the subJect to a criminal tax investigation.
Mr. Mompoint maintained that he was innocent and demanded a jury trial.he trial took place 1n 2016. The government called approximately 15 witnesses. Mr. Mompoint was represented by tax fraud defense lawyer. David M. Garvin. Mr. Mompoint was found NOT GUILTY on all eleven (11) counts of the indictment.
Publication 4687 contains the Due Diligence requirements for paid preparers. Publication 4687 starts by stating the following. By law, if you are paid to prepare a tax return or claim for refund claiming one or more of the following tax benefits, youmust meet four due diligence requirements. The tax benefits are the earned income credit (EITC), the child tax credit (CTC), the additional child tax credit (ACTC), the credit for other dependents (ODC), the American opportunity tax credit (AOTC), and head of Household (HOH) filing status. The 2017 Tax Cuts and Jobs Act expanded the due diligence requirements to cover eligibility to file as head of household. You must comply with the following four Due Diligence Requirements:
The IRS states that if the preparer has any doubt, the preparer must ask the client additional questions that a well-informed tax return preparer, knowledgeable in the law, would conclude the information furnished seems incomplete. The preparer must document in his files at the time of the interview the questions asked and the client's answers. The preparer must compute the credit on a worksheet for any EITC, CTC/ACTC, ODC or AOTC claimed on the return. Form 8867, the Paid Preparer's Checklist must be completed and filed.
The tax return preparer must keep and have readily available for at least 3 years:
If any of the following apply, the preparer may be penalized for the failure of an employee to exercise due diligence:
Sergio Gardea is an accountant and tax return preparer in Ohio. Mr. Gardea has always been a hard worker and law abiding. Mr. Gardea is fluent in Spanish and over the years alot of his clients were from Mexico and the Hondoras. The United States sent an undercover agent to pose as a prospective client from Mexico in an effort to prove that Mr. Gardea was not preparing returns properly. Ultimately, following a lengthy investigation, the United States claimed that Mr. Gardea had improperly claimed refundable credits on many of his client's tax returns. Mr. Gardea was indicted on 30 counts of filing false tax returns.
Mr. Gardea maintained his innocence and entered a plea of NOT GUILTY to all 30 counts. Mr. Gardea went to trial and was represented by David M. Garvin. During the trial the government conceded 9 counts. The jury unanimously found that Mr. Gardea was NOT GUILTY on all 21 of the remaining counts.
The Court announced: Mr. Gardea, you are free to go.
The IRS keep track of the activities of individual tax return preparers through the Preparer Tax Identification Number (PTIN). A vast majority of tax returns are filed electronically. The paid preparer is required to place his PTIN on the face of each tax return the preparer files. The IRS computer keep track of the details of the tax returns filed by a specific PTIN.
The averages on the returns of a specific PTIN are then compared to the local, regional and national averages for all tax returns filed by other paid preparers. If the IRS computer finds that the percentages of a specific paid preparer are unusually high the IRS may commence an investigation.
For example, if the percentage of a specific preparers' returns reflect that over 90% of his client's received refunds as the result of refundable credits, the IRS might commence an investigation to determine what is going on. Generally, the IRS agent will speak with a substantial number of the the paid preparer's clients. If the client state that they do not know why the refundable credits were taken on their tax returns, the IRS may make the return Preparer the target of its investigation.
At this point, the investigation may be handled by the civil section of the Department of Justice, Tax Division or it may be accepted by the criminal section of the Department of Justice Tax Division for criminal investigation and prosecution. If the civil section of the Department of Justice, Tax Division is assigned the case the D.O.J. attorney will represent the government in its effort to have the tax return preparer enjoined from preparing any tax returns in the future.
The department of justice lawyer will file a complaint in the United States District Court in the area of the business of the paid preparer or his business. The complaint in most cases will seek an immediate temporary injunction prohibiting the preparer from preparing anymore tax returns until the case is resolved. The complaint will also seek a permanent injunction barring the paid preparer from preparing tax returns in the future. This is sometimes referred to as the "Business Death Penalty" since the business will be prohibited from doing any further tax preparation.
Because the trial will seek equitable relief from the United States District Court the actual trial will be before the Court. There will be no jury. The Court will hear the witnesses and receive the evidence. Ultimately the Court will decide whether the United States has proven by a preponderance of the evidence the required elements to warrant the issuance of a permanent injunction. See United States v. Cruz, 611 F.3d 880 (11th Cir 2010) and University of Miami law review article, Tax Prepares Finally Beat IRS Death Penalty Action. The Cruz is a landmark case and represents the first time the tax return preparer prevailed in an injunction case based upon the preparer's alleged misconduct in preparing tax returns for clients. David M. Garvin was the tax lawyer that successfully defended Mr. Cruz.
The law review article begins its analysis as follows:
"Prior to United States v. Cruz, courts in the Eleventh Circuit had always sided with the government when it sought to enjoin a person from acting as a tax return preparer as a result of the preparer having continuously engaged in offensive conduct. Such an injunction is known as a "death penalty" injunction because the enjoined tax return preparer is no longer permitted to perform tax return preparation services.
Nationally, the government is almost always successful when the issue is litigated. The Eleventh Circuit's decision in Cruz demonstrates that there is a gray area in "death penalty" injunction cases. It will force the government to fully demonstrate that the tax return preparer engaged in an ongoing pattern of fraudulent conduct and that a less restrictive injunction will not be sufficient, before the government will be able to obtain a "death penalty" injunction against a tax return preparer. The Eleventh Circuit's decision can also stand for the broader principle that the IRS will be expected to satisfy the traditional standards for equitable relief when it seeks an injunction within the Eleventh Circuit."
If you are a tax preparer and believe that the IRS or Department of Justice, civil tax division has commenced an investigation or lawsuit against you with the aim of obtaining an injunction it is important that you retain legal counsel with experience in defending these matters as soon as possible. When interviewing any lawyer, it is your right to ask whether the lawyer has ever handled these types of cases. Ask for the results as well as the name of the case and the case number.
This will enable you to check with the Clerk of the District Court to verify the outcome. As a tax preparer it is important to do your due diligence in retaining the attorney who will represent you. You have a right to ask if the lawyer has ever won a tax injunction case while representing the tax preparer. You are welcomed to compare the track record of David M. Garvin to any other lawyer or law firm. Because the government in an injunction case is seeking the equivalent to the "Death Penalty" of the business, most tax preparers believe that this is a time when "WINNING IS THE ONLY OPTION."
The Criminal Division of the Internal Revenue may investigate and seek the prosecution of tax preparers who they believe to have willfully violated the tax laws.
Tax preparers who are charged with violating the Internal Revenue laws are often charged with violating 26 U.S.C. Section 7206(2). Section 7206(2) provides that any person who willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other documents, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with knowledge or consent of the person authorized or required to present such return, affidavit, claim or document shall be guilty of a felony and, upon conviction thereof be imprisoned not more than 3 years.
The best tax lawyers know that criminal investigations should never be treated by the taxpayer or his representatives as a civil audit. It should be remembered that the job of a special agent is to collect evidence in order to indict and convict the target of the investigation.
The agents are trained to be friendly to get the taxpayer and witnesses to talk and provide them information they need to make a criminal case. However, they can also quickly become angry and intimidating to get the taxpayer or witness to talk, if they determine that this is necessary to get the job accomplished.
Jeffrey Marlow was shocked when the IRS executed a search warrant on his tax preparation business. He was even more surprised when he learned that he was the target of a criminal tax investigation. At all times Mr. Marlow maintained that he was innocent. Determined to clear his good name, Mr. Marlow set out to retain the best criminal tax lawyer he could find. Mr. Marlow was convinced that winning was his only option. With that in mind he searched nationwide for a lawyer that handled IRS criminal tax investigations and criminal tax trials. Ultimately, Mr. Marlow selected David M. Garvin as his tax fraud defense lawyer.
Several months later, while Mr. Garvin was in New York on another case, a call came in on his cellphone. It was the special agent in charge of Mr. Marlow's case. He told Mr. Garvin that he "must be a hell of an attorney". When Mr. Garvin asked why he made that statement, the special agent said that he had been ordered to close the case against Mr. Marlow over his objection.
The Internal Revenue Service records reflect that less than 1% of all lawyers have successfully defended a taxpayer indicted of a federal tax crime. When selecting a criminal tax attorney it is your right to know if the lawyer has ever won a criminal tax case for the defense.
David M. Garvin, has represented several tax return preparers that were investigated for tax violations by the Criminal Investigation Division. Upon meeting with the Department of Justice, Tax Division lawyers and/or the Assistant United States Attorney assigned to the case, David M. Garvin was able to get the criminal case killed and referred back to the civil division of the IRS. This is a testament to the review system and the integrity of the lawyers assigned by the government to review tax cases.
Representative cases of defense attorney David M. Garvin that involved tax return preparers that were killed after investigation but before trial are:
Because less than 1% of the licensed lawyers have won (Not Guilty on all counts) a criminal tax trial for the defense, there is no margin of error afforded a taxpayer who intends to go to trial in a criminal tax case and prove his or her innocence.
Attorney David M. Garvin, is a lawyer who also earned a LLM in taxation (Masters in Law) and is a CPA. Because of his formal training and his unique abstract reasoning (top 1% on national standardized test), Mr. Garvin is able to utilize the complex concepts contained in the Internal Revenue Code to his advantage while defending his clients. Mr. Garvin's ability to master the Internal Revenue Code's complex rules and regulations and his ability to master the courtroom during a jury trial are renown by his peers, his clients and the Courts in which he has appeared.
Other criminal lawyers in tax cases have tried to emulate Mr. Garvin's knowledge and skills by retaining a tax lawyer to conduct the jury trial with them. Unfortunately, this seldom works. In these cases, the IRS agents that testify know more about the facts and the Internal Revenue Coda than the criminal lawyer representing the defendant.
The IRS on direct and cross examination, realizing that the criminal lawyer does not know the Internal Revenue Code, can make statements citing the Code that the criminal lawyer does not know how to respond to. Even if the criminal lawyer walks back to the table for the defense and asks the tax lawyer if the IRS agent is correct, the tax lawyer will not have sufficient time to explain to the criminal lawyer the technicalities to undue the damage caused by the IRS agent or the governments expert witnesses.
The tax lawyer cannot conduct the cross examination because most tax lawyers have never handled a federal jury trial and are not experienced enough to conduct an effective cross examination of a trained IRS agent.
When you are the target of an IRS criminal investigation, retaining a criminal tax lawyer who has actually gone to trial in numerous criminal tax cases and has obtained complete acquittals (Not Guilty Verdicts on All Counts) is imperative.
There are a lot of competent tax attorneys that have no concept as to how to try a federal criminal trial. Likewise, there are a lot of competent criminal lawyers who know how to try a case but, have no knowledge of the tax laws. When these lawyers are hired by a taxpayer they often limit their defense of the taxpayer to the issue of willfulness.
This routinely results in the defense lawyer ultimately recommending that the client accept a plea agreement which requires the taxpayer to plead guilty to a felony. An experienced successful tax fraud lawyer knows that a defense based solely upon willfulness is a defense of last resort and is seldom sufficient to achieve not guilty verdicts on all counts.
Yes. The IRS issues each tax return preparer a unique Preparer Tax Identification Number (PTIN). The preparer is required to place his PTIN on each tax return he prepares. The IRS computers monitor each return the preparer files. The computer compares the return preparer's tax returns against the known averages for all other preparers.
For example, the computer will monitor the percentage of taxpayers that receive a refund and the percentage of taxpayers that receive refundable credits. If a particular return preparer's percentages are much higher than other return preparers, the computer will alert the IRS of the PTIN with the unusual history. This often begins an audit/investigation.
The most common issues that cause an audit of a tax preparer are related to the preparer's returns when compared by the IRS computers to the average returns filed by other return preparers. Some of the most common items are head of household, earned income tax credit, child care tax credit, American opportunities credit, Schedule-C income and expenses, and Schedule-A deductions.
Once a preparer has been selected to be audited, the agent conducting the audit will often ask for 25 to 50 files to review. The return preparer generally is not told in advance which specific tax returns will be audited and has little or no opportunity to review and/or supplement the files.
Yes. While a majority of tax attorneys focus their law practice in the areas of tax planning and tax transaction work, a small percent of tax attorneys handle tax litigation. Broadly speaking there are two types of tax litigation:
Civil tax litigation includes litigation regarding proposed preparer penalties and injunctions to prevent the preparer from working in the tax preparation business. Criminal tax litigation includes tax evasion (7201) and the preparation and filing of false tax returns (7206).
The most common civil penalties are penalties based upon the failure of the preparer to exercise due diliglence.
Yes. The IRS together with the Department of Justice, Tax Division may file a lawsuit for a permanent injunction against a return preparer. In those cases, the IRS will request the Federal District Court to enter a permanent injunction against the return preparer prohibiting the preparer from preparing and/or filing tax returns for third parties in the future.
The lawsuit ultimately leads to a trial in which the Judge decides the facts and the applicable law. This type of case does not permit a jury trial. Instead, the trial is a bench trial.
Congress passed into law a number of credits that can cause a taxpayer to receive a refund even if they never paid in to the IRS any taxes during the year. These "refundable credits" became very popular, especially in low income areas of the country. Return preparers faced pressure from clients to claim refunds on their respective tax returns. This resulted in the clients receiving refunds that they were not entitled to. To try to prevent this abuse, rules were implemented that made the tax preparer responsible to pay a penalty if the preparer did not conduct adequate "due diligence" before preparing a tax return that claimed one or more refundable credit.
The refundable credits included the earned income tax credit, the child tax credit, the additional child tax credit, the American opportunity tax credit, and the head of household filing status. The law regarding the preparer's obligation to comply with specified due diligence requirements are contained in Section 6695(g) of the Internal Revenue Code. Failure to comply with the requirements results in a fine. The fine is adjusted for inflation. The fine in 2021 was $500. The fine in 2022 is $540.
The treasury regulations explain the due diligence rules. The regulation state that there are four due diligence requirements tax the preparer must meet to avoid a penalty. The penalty is asserted against each tax return file.
The four basic due diligence requirements are: