If a mere tax preparer can end up in federal prison for over 4 years, why the heck isn’t Jamie (what? we wuz bad?) Dimon behind bars for life?
A tax preparer claimed fraudulent losses on his own returns and those of his clients. The IRS estimates that Mr. Ukwu lost the government $2.1 Million in tax revenue. The math worked out to 51 months in the United States of
America Goldman Sachs penitentiary.
From Parker’s Tax Bulletin
Fourth Circuit Upholds Four-Year Prison Term for Former Corrections Officer Turned Tax Preparer
The four-year prison sentence handed down to a former corrections officer turned tax return preparer was appropriate in light of the estimated $2.1 million tax loss he caused to the government. Ukwu v. U.S., 2013 PTC 370 (4th Cir. 11/22/13).
Obinna Ukwu was a Maryland corrections officer. In 2006, he started an accounting business as side business. The business offered tax return preparation services, and Obinna operated the business until midway through 2010, when his legal problems began. In the intervening years, business boomed in 2006, his revenue was roughly $8,000, but by 2009, it soared to $175,000.
A criminal investigation in 2010 revealed that Obinna claimed fictional business losses in order to garner tax benefits. At trial, the vast majority of clients testified that these losses were entirely false and that they were not aware that Obinna had invented the numbers on their returns. Obinna also claimed false charitable deductions on his clients’ forms. He committed tax fraud on his own income taxes, filing a joint return for his wife and himself, but also filing a separate individual return for his wife under a different name. Finally, Obinna took fees from his clients’ bank accounts and refund checks without notifying them.
Obinna was convicted of 12 counts of aiding and assisting in the preparation of false income tax returns under Code Sec. 7206(2) and was sentenced to 51 months in prison. In estimating the amount of tax loss caused by Obinna, the IRS analyzed a non-random sample of returns at trial and found that 90 percent of the Schedule C losses were entirely false. Then, investigators used a random sample to confirm this estimate, reasoning that since the random sample bore the same patterns as the nonrandom sample, the two samples likely contained similar levels of fraud. That is, since the random sample looked like the non-random one, and since 90 percent of returns in the nonrandom sample were completely false, then 90 percent of the random sample was also likely to be completely false. The IRS used this 90 percent number to calculate Obinna’s tax loss estimate. The investigators could establish that among the 1000 returns where a Schedule C loss was claimed, Obinna claimed roughly $16.4 million in Schedule C losses. If 90 percent of these losses were entirely fabricated, that meant that roughly $14.6 million of false losses were claimed. Assuming the lowest marginal tax rate of 10 percent, and factoring in state tax losses, the estimated tax loss was roughly $2.1 million. Because this estimate was between $1 million and $2.5 million, the district court concluded that Obinna merited a base offense level of 22 and, thus, a prison term of 51 months.
*The title is a riff on the line in Cool Hand Luke, “What we have here is a failure to communicate.”