James A. Ericson really missed the mark as a federal income tax preparer.

In February 2015, the U.S. District Court for the District of Hawaii permanently barred Ericson from preparing federal income tax returns.

Ericson had prepared a large number of income tax returns in which he took unrealistic and unsustainable positions on clients’ tax returns. He willfully understated taxes due and had a reckless and intentional disregard for tax rules and regulations.

The 9th U.S. Circuit Court of Appeals does not have a clear standard or test for the district court to apply in determining whether a lifetime or permanent ban against all tax return preparation is proper. However, the courts have considered a variety of factors in analyzing this issue.

The following are some of the factors considered by the courts through the years in determining whether a lifetime ban is appropriate:

1. A defendant’s willingness or refusal to acknowledge wrongdoing

2. Compliance with the law following a warning or notification by the IRS that the conduct is unlawful

3. Percentage of tax returns filed that are fraudulent

4. Severity of the harm, i.e., the amount of money fraudulently requested and the amount actually and erroneously released

5. Number of discrete fraudulent practices

6. Longevity of the fraudulent scheme

7. Defendant’s degree of “scienter,” or knowledge

The facts and circumstances of the case indicate that Ericson performed negatively under all seven factors.

Regarding the first factor, Ericson has always maintained his innocence under cross-examination. He was warned by the IRS back in 2009 that his practices were improper, and he was fined.

Ericson continued preparing improper returns for the next three years, violating the second factor.

Ericson severely violated the third through fifth factors. The IRS examined 611 federal income tax returns of his clients from 2007 through 2012 and found a total tax shortfall of more than $2.4 million. This amounts to an average of almost $4,000 per return, and when projected over all of the returns that Ericson prepared, a loss to the U.S. Treasury of over $30 million in revenue. Between 86 and 92 percent of Ericson’s clients received a refund.

The sixth factor was violated because this fraudulent activity had been carried out for over five years. The court also found Ericson guilty of the seventh factor because it felt that he knowingly and repeatedly violated the U.S. Tax Code.

Because the court found all of the seven factors against Ericson, it felt it was appropriate to impose a lifetime ban on his ability to prepare individual income tax returns (United States of America v. James A. Ericson, U.S. District Court, District of Hawaii, 2015-1 U.S.T.C. Paragraph 50,222, Feb. 20, 2014).

©2015 CPAmerica International