Tax Tip of the Day: Tax Return Preparers Must Adequately Monitor Their Employees

A federal appeals court recently upheld Hugo Jean-Joseph’s conviction for eleven counts of willfully aiding or assisting in the preparation of false or fraudulent income tax returns presented to the Internal Revenue Service (IRS), in violation of 26 U.S.C. § 7602(2). Mr. Jean-Joseph was the president and owner of a tax return preparation company. The government alleged the company falsely overstated its customers’ deductions to the IRS to generate larger refund amounts. The company would then give its customers a refund check in an amount smaller than what was submitted by the IRS. This allowed the company to skim extra money off the top and acquire a fraudulent profit. At trial, Mr. Jean-Joseph argued that because he never personally prepared any customers’ tax returns, he could not be guilty of the charged crimes.

On appeal, the court rejected Mr. Jean-Joseph’s argument. In doing so, the court noted that the use of Mr. Jean-Joseph’s Electronic Filing Identification Numbers (EFINs) to file each of the fraudulent tax returns supported an inference of his involvement in their creation. The court specifically accepted the IRS’s position that the owner of an EFIN “is responsible for the maintenance of the EFIN and all of the returns that are filed with the IRS through the EFIN.”

Although the court pointed to additional circumstantial evidence to uphold Mr. Jean-Joseph’s conviction, the opinion makes clear that it is proper for a jury to hold the owner of an EFIN responsible for the criminal activities of their employees. It is therefore critical that an individual adequately monitor and supervise the preparation of tax returns filed under their EFIN. A copy of the opinion may be found here.