Using Multiple PTINs to File Fraudulent Tax Returns

Published Categorized as Criminal Tax, Tax Relief
IRS multiple PTINs, Austin Tax Attorney

It can be difficult to be a tax preparer. The rules change just about every year. The IRS has increased its focus on identifying and punishing tax return preparers. This includes criminal sanctions for the tax return preparers. The enforcement actions often do not factor in the realities of the tax preparation business. The recent United States v. Connor, 537 F.3d 480 (5th Cir. 2008) provides an example involving a tax return preparer whose sentence was increased just because he used multiple PTINs.

Facts & Procedural History

The defendant operated a tax-preparation business in Arlington, Texas. He filed tax returns under his own Electronic Filing Identification Number (EFIN). He filed returns using his Preparer Tax Identification Number (PTIN), his wife’s PTIN, and PTINs for his employees.

He was indicted on 12 counts of aiding and assisting in the preparation of false tax returns for filing false tax returns. The tax returns included education tax credits that the taxpayers were not eligible for.

The defendant plead guilty to two counts and the trial court increased the defendant’s sentence using the “sophisticated means” enhancement. This appeal focuses on whether the use of multiple PTINs justifies the enhancement.

About the IRS EFIN

The EFIN is used by tax return preparers to file tax returns electronically. For tax return preparers who serve lower income clients, the EFIN is a must. It allows the preparer to sign up for bank products (from third parties typically) that allow the preparer to offer clients instant refunds or loans based on electronically transmitted tax returns.

The EFIN also allows the IRS to monitor and regulate tax return preparers. It does this by having a somewhat rigorous enrollment process and revoking EFINs for EFINs used to file inaccurate returns, etc.

As a practical matter, it is common for a tax practice to have one or more EFINs and allow multiple tax preparers to file returns using the same EFIN. The rules then place the burden on the person who registered the EFIN, the Electronic Return Originator, for reviewing and approving tax returns submitted using the EFIN.

About the IRS’s PTIN

The PTIN is a number provided by the IRS for those who are not attorneys or CPAs (although attorneys and CPAs often register for PTINs). The PTIN process was created as another way to regulate those who prepare tax returns.

The courts have largely invalidated the PTIN rules. Suffice it to say, un-credentialed tax return preparers still have to obtain a PTIN to file tax returns.

Unlike the EFIN, most tax return preparers list their own PTIN on tax returns they prepare. This can vary by tax practice. In some tax practices, all tax return preparers use the PTIN of the firm owner. The firm owner then signs off on all of the firm’s tax returns.

The “Sophisticated Means” Enhancement

This brings us back to the question in this case. Is the use of someone else’s PTIN justification to increase their sentence for filing false tax returns?

The term “sophisticated means” refers to an “especially complex or especially intricate offense conduct pertaining to the execution or concealment of an offense.” Is using multiple PTINs an attempt to conceal an offense?

The facts of this case suggest the answer. The court notes that the IRS was able to identify all returns prepared by the defendant by looking to his EFIN. The fact that the defendant used multiple PTINs did not keep the IRS from knowing what tax returns he had prepared. The court even noted that “the agent traced all the returns filed by Patel via one EFIN registered to [the defendant].”

The appeals court noted that any “deliberate steps taken to make the offense more difficult to detect” are sufficient. The appeals court cites another case involving the express use of fictitious business names to sell items on EBay. The express use of fictitious names does not seem comparable to using multiple PTINs, particularly where all returns are filed using the same EFIN. Despite this, the appeals court concludes that the trial courts use of the enhancement should stand.

Some might argue that a better remedy for the IRS would be civil tax penalties and/or court ordered restitution. The government typically imposes both on tax return preparers in addition to criminal sanctions.