Tax preparer charged for improper deductions

| 4/6/2009

An Iowa tax preparer who worked mostly with truckers has been charged with helping commercial drivers claim as much as $17 million in illegal tax deductions.

Gayle Lemmon, working through Gayle’s Bookkeeping and Tax Service Inc., was recently sued in U.S. District Court in the Northern District of Iowa by the U.S. Department of Justice.

According to court documents, the government alleges that Lemmon understates her customers’ tax liabilities by claiming improper deductions. She mainly caters to truck drivers and small-business owners from 27 states, the documents state.

The IRS examined 243 returns Lemmon prepared between 2003 and 2008, finding that 224 of the returns understated the customer’s tax liability. The average understatement on examined returns equaled $2,582.22.

Assuming that the tax understatement rate and average tax understatement is representative of all tax returns Lemmon prepared, the Department of Justice estimated she may have helped some clients illegally avoid paying as much as $17 million in taxes.

The lawsuit alleges that Lemmon claimed inflated or bogus itemized deductions, including unreimbursed employee business expenses and charitable contributions to offset customer income. The suit also claims that Lemmon knowingly prepared returns for truck drivers that claimed business expenses for personal items, such as deductions for DVDs, televisions, coffee pots and razors.

In one instance, Lemmon allegedly told one trucking family that the amount of expenses they estimated for 2003 was too high, “which would be a red flag to the IRS and so she reduced some of the deductions,” court documents stated.

A different customer reported fabricated deductions for “showers” and “washes” in the amount of $1,560 and $2,709.

The suit also alleges that Lemmon helped customers establish sham corporations in order to reduce their self-employment tax.

Even after Lemmon knew the IRS was investigating tax returns prepared by her company, Lemmon continued to prepare federal income tax returns that understated customer liabilities, court documents stated.

The federal government is asking the court for injunctive relief and to bar Lemmon from preparing anyone’s taxes, saying Gayle’s Bookkeeping and Tax Service “are likely to continue to prepare false federal income tax returns and engage in other misconduct.”

– By Charlie Morasch, staff writer