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Md. comptroller suspends 15 more tax preparers for questionable returns

With just over a week left before the income tax filing deadline, Maryland Comptroller Peter Franchot issued the latest in a series of suspensions blocking private preparers suspected of filing fraudulent electronic returns.

Franchot said Friday his office stopped processing all electronic returns from 15 more preparers, deeming questionable many of those firms' returns filed so far. The comptroller's office has been flagging potential signs of tax fraud and identity theft, and has halted returns from 54 preparers this season.

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Those businesses are among 93 firms blocked from filing returns electronically. Electronic filings now account for between 85 percent and 90 percent of all tax returns.

"Until they come in and show us basic documents that support what we think are highly questionable returns they had filed, we are not going to process any returns from their office," Franchot said. "You would think most would come in immediately with backup material showing everything in these returns has some foundation in reality. ... They don't come in because they're fraudulent, fly-by-night. ... That's our strong suspicion."

He said Maryland, like other states, has seen an increase in fraud, particularly in electronic returns, some from "pop-up" tax preparers that abuse the system. Red flags include business income reported by taxpayers who don't own a business, refund requests that are much higher than the previous year's, inflated or undocumented business expenses, claims for dependents who were not provided the required 50 percent support or care, and inflated wages and withholding information.

Taxpayers also have been victimized when thieves steal Social Security numbers and file fraudulent returns.

The latest suspensions came Friday as time appeared to be running out for a measure Franchot has pushed for in the legislature that would allow his office to investigate income tax fraud and shut down businesses found to be operating illegally. The bill, which failed in 2016, was passed by the Senate, and as of Friday had moved to the House of Delegates.

Under the current system, without enforcement authority, "in theory I'm penalizing a completely honest taxpayer whose return is submitted by companies we've identified," Franchot said. But "we have to protect the treasury, or they'd rob us blind."

This tax season, as in previous seasons, many of the taxpayers who show up for help at the Baltimore CASH Campaign have been victimized in previous seasons by preparers operating illegally, said Sara Johnson, director, of the organization that offers free tax preparation services to low- and moderate-income people. Taxpayers should be suspicious if a tax preparer deducts fees from their refund, does not sign their tax return or fails to include their preparer taxpayer identification number, he said

"We regularly see clients coming in who went to a paid preparer the previous year with a lot of ... issues they're trying to get resolved," many of whom have been notified by the IRS. "They're really distraught. The tax return is an important document. It's used to apply for financial aid and build assets. When that document isn't right, it gets them off course."

Several owners of blocked businesses said Friday they were unclear about why they were on the list.

One business owner said Friday she was shocked to see the firm she's built into a year-round business serving the Latino community in Hyattsville on the comptroller's list.

"This is very devastating," said Evelyn Sotelo, "I am super-precise, and I would never even think I'd be in the pool of companies for this type of situation. With all my customers, I'm very thorough. I strive to have a professional, honest tax service."

Sotelo, owner of Eze Tax Service, said she intends to work with the comptroller's office to resolve the suspension, and will call in her clients to back her up if needed, but still fears lasting damage to her reputation.

"I'm hoping this goes by quickly," she said.

During last year's tax season, 13,000 electronic tax returns seeking $22 million in refunds were blocked in Maryland, according to the comptroller's office. The office audited more than 19,000 returns, many because of questionable business income, and adjusted more than 80 percent of those.

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Several businesses that were suspended last year are now in compliance and have been unblocked, the comptroller said.

Last month, an owner of four Liberty Tax Service franchises pleaded guilty to conspiracy to steal from the state in connection with a fraudulent tax scheme. Vanessa Kone, who had operated six Liberty stores in Baltimore, was sentenced to five years in prison, all suspended, three years of supervised probation and was ordered to pay $38,041 in restitution and a $10,000 penalty, according to an announcement by Franchot and Maryland Attorney General Brian E. Frosh.

Kone had been accused of preparing and filing fraudulent federal and state income tax returns and claiming refunds in the names of taxpayers. None of the taxpayers had earned any income and often were homeless. The refunds were filed electronically, with fees, sometimes as much as 85 percent of the total refund, taken out before net proceeds were distributed to taxpayers, Frosh said.

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