Criminal Tax Practitioner’s Update: Sentencing Guidelines Updated to Account for Inflation
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Laguna Hills Tax Preparer Pleads Guilty

The IRS issued a press release yesterday announcing that Randall Hutchens, who was a return preparer in Laguna Hills until at least 2013, pleaded guilty to three counts of filing fraudulent tax returns on behalf of his clients.  Generally, in plea agreements for return preparers, the Department of Justice requires the defendant admit to the general conduct surrounding the counts – including other relevant conduct that may be pertinent for sentencing – and requires the defendant to consent to a lifetime ban (a civil injunction) from preparing future returns should the civil side of the DOJ request it.  So it is no surprise those to elements are present here.  The IRS’s press release, which can be found here, describes some of the relevant conduct in the plea agreement:

According to the plea agreement filed in the case, from approximately May 2010 until October 2013, Hutchens sold fraudulent tax shelters to numerous clients through his tax preparation company, ASI. Hutchens promoted these tax shelters to his clients as legal ways to reduce their prospective tax liabilities. The tax shelters required clients to purchase an equity interest in a limited liability corporation (“LLC”) on condition that the LLC could, within a short period of time (typically, two years) repurchase that interest for substantially less than the price paid for it (typically, $1). However, none of the LLCs were legitimate.

For customers who bought the shelters, Hutchens would then prepare their tax returns, including in them false losses related to the tax shelter LLCs, which reduced the federal taxes that those clients would otherwise have owed to the government. During the course of this scheme, Hutchens prepared and filed with the IRS at least 125 false federal income tax returns that resulted in tax losses to the United States of at least $1,622,512.

The sentencing hearing before Judge David O. Carter in Santa Ana is set to take place on September 28, 2015.

Under the recently revised sentencing guidelines (revised to take inflation into account), the offense level, before adjustments for acceptance of responsibility or enhancements is 22.  SBecause tax shelters are involved, the government may be seeking a 2-level sentencing enhancement for “sophisticated means.”  There may also be a 2-level reduction in offense level for acceptance of responsibility (somtimes 3 levels, if the government so moves).  So, Hutchens may be looking at an offense level of 21 or 22.  Thus, even though the IRS’s press release states there is a statutory maximum sentence of 9 years, the sentencing guidelines advise that the sentence should usually be around 4 years.

Daniel W. Layton is a former federal prosecutor and ex-IRS attorney.  He is the principal of Tax Attorney OC.

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