Arizona Tax Scam Case Affects Thousands

Oct. 15 is the deadline to file 2006 taxes for those who requested an extension. But for thousands of people who relied on Accountable Business Services in Gilbert, Arizona, it may be too late. The tax scam leaves them to pay big time.

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On Fridays, we talk about your money. And here's reminder. If you asked for an extension to file your 2006 income tax return, you have until October 15th to get it in, but if you're among the thousands of people who rely on a certain tax preparer in Arizona, it may be too late and you may have to pay big time.

NPR's Ted Robbins has a cautionary tale.

TED ROBBINS: Accountable Business Services is located in an office park in Gilbert, Arizona - a Phoenix suburb. The owners didn't want to comment for this story, which is why I'm standing outside. Just inside the office, one of those homey little plaques, you know, the kind meant to be cute - this one reads: Dear IRS, I would like to cancel my subscription. Please remove my name from your mailing list.

Mr. TEDDY GODDARD (Attorney General, Arizona): I think the IRS has definitely canceled these people's subscription.

ROBBINS: Terry Goddard is Arizona's attorney general. The state has indicted eight members of the family that owns Accountable Business Services. That's a lot of indictments. But Goddard says prosecutors took it easy.

Mr. GODDARD: Oh yeah. You know, there are 136 counts to this indictment, but if anything could be characterized as the tip of the iceberg, I'm afraid this is it.

ROBBINS: The IRS has yet to bring charges. Most of the state allegations involve forged and false returns. For instance, the mortgage interest deduction for homeowners, if you went to Accountable you got a big one, whoever you were.

Mr. GODDARD: People who may not have even owned property were taking mortgage interest deductions in substantial amounts.

ROBBINS: Accountable Business Services had about 7,000 clients. Arizona Department of Revenue spokesman Dan Zemke says most of those clients came through word of mouth.

Mr. DAN ZEMKE (Department of Revenue, Arizona): Someone went to them, got a big refund, said hey, go see these people, they'll get you a big refund.

ROBBINS: It's likely some of those clients knew what was going on.

Mr. ZEMKE: It would seem obvious to me, at least, that if, for instance, mortgage interest is claimed as an itemized deduction and I don't own a home, that there's something wrong with that.

ROBBINS: It's also likely a lot of those 7,000 clients just wanted their taxes prepared honestly. Problem is, all of the clients now have to file amended returns - some going back to 2003. And that means back taxes, interest and penalties.

Arizona estimates this alleged scam cost the state about $10 million. And since state tax is only a percentage of federal tax, it cost the IRS a lot more. Dan Zemke has some advice for the clients. It sounds a lot like a cop to a suspect: Come clean now.

Mr. ZEMKE: And let's face it, if you're cooperative with us, we're going to tend to be more cooperative with you.

ROBBINS: This is believed to be the largest suspected tax fraud in Arizona history in terms of the number of people involved. The lesson to be learned, though, applies to individuals everywhere.

Mr. ZEMKE: Everybody needs to realize that the contents of a tax return that they are filing, that they have signed, is their responsibility.

ROBBINS: The best advice from the National Association of Tax Professionals is to always look at your own tax return before signing it, and don't go to someone who promises big refunds.

Arizona Attorney General Terry Goddard.

Mr. GODDARD: Be super suspicious when it appears that fortune has smiled on you so amazingly as in this case where your tax refund exceeded all expectations.

ROBBINS: Arizona has yet to decide what to do with those clients in this case who knew what was going on. As for the owners, they face up to 46 and a half years in prison.

Ted Robbins, NPR News, Phoenix.

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