Eleventh Circuit Affirms 90-Month Prison Sentence for Former Tax Return Preparer

(Parker Tax Publishing July 2021)

The Eleventh Circuit affirmed the conviction and 90-month prison sentence of a tax return preparer who was found guilty of the theft of government money and aiding and assisting in the preparation of false tax returns. The court agreed with the district court that the taxpayer, who was the owner and operator of multiple tax return preparation businesses in Palm Beach and surrounding areas, had (1) falsified clients' returns by reporting fictitious business losses and tax credits in order to fraudulently inflate their refunds, and (2) stolen a federal tax refund check worth nearly $10,000. Senat v. U.S., 2021 PTC 170 (11th Cir. 2021).

Background

From at least 2011 to 2018, Paul Senat owned several businesses in and around Lake Worth, in Palm Beach County, Florida. Amongst other ventures, Senat was in the business of preparing tax returns. During this period, Senat owned and operated a tax preparation business with multiple offices, including one where he prepared tax returns. This particular business operated under several names, including American Fast Services & Tax, American Justice Services & Tax, and AM & PM Tax Services.

On March 5, 2019, a federal grand jury in the Southern District of Florida returned indictments against Senat, including one count of fraudulent endorsement of a federal tax refund check worth nearly $10,000, one count of theft of government funds, one count of aggravated identity theft, and twelve counts of aiding and assisting in the preparation of false tax returns in violation of Code Sec. 7206(2) and 18 U.S.C. Section 2. The indictment alleged that Senat stole from the federal government in two ways. First, it alleged that he deposited into his personal bank account a stolen tax refund check that was issued to someone else and had that person's signature forged on it. Second, it alleged that he aided in the preparation of fraudulent tax returns for clients that went to his tax preparation business.

The government provided evidence at trial that showed that Senat was an experienced tax return preparer with knowledge of his legal duty to prepare tax returns truthfully and thus, by not doing so, had acted willfully. The evidence showed that Senat's tax preparation practices were audited by the IRS on at least two occasions, which resulted in the assessment of penalties and put him on notice as to his violations of his legal duties before he prepared the vast majority of the returns charged in the indictment. The evidence also showed that, through his businesses, Senat falsified his clients' returns by reporting fictitious business losses and education expenses in order to claim education credits, including American Opportunity Credits.

In November of 2019, a federal jury convicted Senat on 10 of the 15 counts with which he was charged. At sentencing, the trial judge found that Senat caused a tax loss of more than $3.5 million to the United States and sentenced Senat to 90 months in prison and, in addition to the term of imprisonment, ordered Senat to serve three years of supervised release and to pay $9,779 in restitution to the United States.

Senat appealed his conviction and sentence to the Eleventh Circuit. On appeal, he first argued that there was insufficient evidence to convict him because the government failed to present direct evidence that he prepared the tax returns. Next, he argued that the district court erred in denying his motion for mistrial based on a prejudicial statement by a witness because the statement was so damaging that the curative instructions were insufficient. He further argued that the district court incorrectly used an extrapolation method to calculate the total monetary loss because it should have investigated each tax return individually to show that any loss was due to fraud and not just negligence or mistake. Finally, he argued that the district court erred in assessing a two-step guideline enhancement for being a leader of a criminal scheme because he did not direct the actions of any other tax preparer.

Analysis

The Eleventh Circuit affirmed the conviction and held that there was sufficient evidence in the record to support the district court jury's guilty verdict. The court noted that a former client had testified at the trial that Senat did her taxes, and evidence showed that Senat's name and preparer tax identification number (PTIN) were on her 2012 tax return that claimed false business losses. Other individuals, the court noted, had also testified that Senat had prepared their tax returns, which contained Senat's PTIN and which claimed false business losses and education credits to which they were not entitled.

Additionally, the court observed, Senat had the most clients and was also the person who filed for an employer federal identification number for his business. Although Senat presented evidence that he may not have prepared these tax returns because other preparers would use his PTIN, the court said he did not need to be the one who actually prepared and sent in the returns to be convicted under Code Sec. 7206(2). Even if he did not press "send," the court stated, just registering for a PTIN and allowing someone else in his business to use his name and PTIN counted as "assisting" in the preparation of tax returns.

The court also noted that Senat had filed false education credits on his own returns, which showed the court that he knew how to claim the false education credits and had not claimed the same education credits on other people's tax returns by mistake. None of the clients asked for the false information to be on their return, the court noted, and none provided any documentation that would cause Senat to put the business losses, or claim the education credits, on their returns.

The court also noted that Senat had taken classes on tax preparation through the IRS, suggesting to the court that he had the expertise to maximize the tax credits on the tax returns in this case. Also, he collected large fees without his clients' knowledge, over $370,000 in 2014, which was deposited into a business bank account that he was the sole owner of. This showed the court that Senat had motive for assisting in preparing fraudulent tax returns.

Finally, the court found there was also sufficient evidence to find Senat guilty of the theft of government money as a result of depositing a client's federal tax refund check for almost $10,000 into his personal bank account. First, the court said, the money still belonged to the government because it had not been cashed by the intended recipient. Second, the money was deposited into Senat's personal account that only he had access to, which meant to the court that he took the money for personal use. Third, the government presented evidence that he deposited it on the same day that he deposited another personal check into his account. And despite what Senat argued, the court found no evidence that anyone else ever withdrew or deposited money into Senat's personal account where the client's check had been deposited.

For a discussion of criminal and forfeiture penalties relating to false and fraudulent statements and fraudulent tax returns, see Parker Tax ¶265,125 and ¶265,128, respectively.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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