Tax prep business convicted of tax fraud and America’s massive fraud problem

The man who owns two tax preparation companies which prepared thousands of income tax returns containing materially false information, was convicted of tax fraud and making false statements to federal agents.

Mohammed Al-Suqi, 54 prepared his clients income tax returns so that they would receive large federal income tax refunds. The problem is that the information he included was false. In 2011, he prepared an income tax return for an under cover IRS agent posing as a taxpayer and boasted of his popularity as a tax preparer who helps his clients his clients large refunds. In addition, Al-Suqi claimed false expenses and credits on his own tax returns.

He will be sentenced on October 4 and faces a maximum penalty of three years in prison on each count and five years on the false statements count.

How much tax evasion is there in the United States? In a study done by economists Edgar Feige and Richard Cebula, calculated that in 2009, $390 to $537 billion in proper taxes remained uncollected. That amounted to a total of 18-23% of the reportable U.S. adjusted net income. According to their study, the occurrence of tax evasion goes up when unemployment goes up, when the average income tax rate goes up, when a larger segment of the economy comes from small, side or cash work, and when IRS audits decrease. Here’s another way to look at the loss to America. Assume that each year, tax frauds cheat the government to the tune of about $400 billion. That number appears to the the most verifiable number. According to the General Accounting Office, the yearly cost of Medicare fraud is about $50 billion or 10 percent of the annual budget of $500 billion for Medicare. If you combine the two you get $550 million in fraud YEARLY. If that money could be collected, what effect could it have on the economy? It wouldn’t fix our financial mess right away but stemming the losses would make a big difference.

Jeffrey Newman represents whistleblowers.