Copyright © 2019 By JOSEPH G. LARIOSA
CHICAGO (JGL) – Filipino American income tax preparer Gary Aquino Sandiego was fined $5,000 in 2011
after knowingly allocating indirect home office expenses as direct business expenses of a client thus willfully creating a deduction that would materially understate the tax reported on the return.
Despite the penalty, Sandiego, 49, still “submitted fabricated receipts” to the U.S. Internal Revenue Service for clients even after a suit was filed against him last year before the U.S. District Court of the Northern Illinois in Chicago.
His customer Adriana Gebka had declared that Sandiego took her blank receipts, filled them out so they would equal a fabricated deduction on her return, and then back-dated them as if they had been filled out three years prior.
His three other customers Joh Tavera, Julio Cuenca and Honeybee Bassig had independently declared that Sandiego fabricated or inflated non-cash charitable deductions of $2,850 on their returns. For his defense, Mr. Sandiego cited a prior Second Circuit Court of Appeals ruling that “oral testimony can substantiate most all personal and business deductions.”
GARY A SANDIEGO & WIFE MIA LEE (Facebook photo)
Because of these violations, the U.S. government has asked Judge Elaine E. Bucklo to “bar Sandiego from preparing returns” while this case is pending ”to protect the public from Sandiego's 'continuing abuses' in violation of the mandate of the U.S. Congress which passed Sections 6694 and 7407 of the Internal Revenue Code to prevent such violations. The lawsuit also asked the court to order Sandiego to disgorge to the U.S. government the gross receipts Sandiego & Associates have received for preparing federal tax returns making false or fraudulent claims.
Sandiego's lawyer, Jonathan Decatorsmith, opposed the motion for preliminary injunction, prohibiting Sandiego from further preparing tax returns to thousands of his clients, saying the ban is “premature, unfair and disproportionately punitive attempt to take away Sandiego’s primary source of income before the case has been tried and evaluated by this Court on a fully developed trial record.”
Steven S. Tennyson, the U.S. government lawyer from the U.S. Department of Justice's Tax Division in Washington, D.C., however, presented to Judge Bucklo Sandiego's income tax return that shows that even if Sandiego were to stop from preparing tax returns, he will not be totally deprived of his livelihood because his $122,106 annual income from “rental real estate, royalties, partnership S corporations, trusts” if combined with his and his wife Mia Lee's “other income of $46,059” could still tide him over while the case proceeds.
GARY A. SANDIEGO & ASSOCIATES FACEBOOK PAGE
Sandiego, a native of Quezon City, Philippines, however, argued that he could face economic hardship if he were to stop earning income from tax preparation because of his “large family, including his parents, my sister, who has special needs and also my wife's family (her sister and brother-in-law) rely on my tax preparation business as our primary source of income.”
U.S. ASKS COURT TO GRANT PRELIMINARY INJUNCTION
In support of the preliminary injunction, the U.S. government told the court that it should be granted if it determines that (1) Sandiego has repeatedly understated his customers’ tax liability using positions that he knows, or reasonably should know, are unreasonable, and (2) his misconduct warrants this relief.”
The government said Sandiego's scheme targets deductions that are not independently reported to the IRS (the way, for example, employers report W-2 wages to the IRS).
Fabrications of these deductions are only detected thru an audit, a “resource-intensive process that IRS uses on less than 0.7% of returns filed.”
Using his words, the government says, Sandiego plays audit “lottery,” i.e., he places his customers at risk of audits and penalties, while hoping his fabrications are lost in the noise of the hundreds of millions of returns filed annually.”
Sandiego carries out this scheme by mass-manufacturing deductions in the same exact amount, allowing him to churn out returns and maximize his own profit. And then, these boilerplate deductions are audited, he apparently trumps up documents to conceal his initial fabrications.
AUDIO INTERVIEW WITH MR. BERT A. GAZMEN, E. A.
Enrolled Agent of U.S. Internal Revenue Service
In IRS's audit of 194 of Sandiego's 10,000 prepared returns – all of them understated customers' liability, often using false deductions in the exact amount.
Over 30 of Sandiego's customers have declared that Sandiego reported false and outlandish items on their tax returns. Twenty-three of these customers have declared that on their returns, Sandiego fabricated credits for solar panels in the exact amount.
During the audits of his prepared returns, Sandiego asserted the same unreasonable positions and provided similar misleading documents to the IRS – a “common thread for these unreasonable figures, as his hallmark fabrications appear again and again.”
WHILE SANDIEGO PROFITS, HIS CUSTOMERS, U.S. PAY HEAVY PRICE
While Sandiego profits, his customers and the U.S. pay a heavy price. The customers, many of whom are not tax-law sophisticates, placed their trust on Sandiego to prepare their returns honestly. Yet, Sandiego exploited that trust. Rather than earn his fee, he fabricated boilerplate deductions. Now, the customers face audits. Many owe substantial amounts to the IRS, according to the government brief.
Out of 10,000 returns prepared by Sandiego, he understated his customers' tax liability by $927,560.
As the sole tax return preparer for G. Sandiego & Associates, Ltd. located at Deerfield, Illinois with his wife, Mia Lee, acting as a telephone receptionist, last year alone, Sandiego prepared returns reporting over $260,157,715 in adjusted gross income. He charges fee from $30 to $180 per preparation of tax returns. He has been a tax preparer since 2002 after training from H & R Block.
Sandiego compares his returns with other fraudulent preparers, tax protestors, and untrained individuals. He misreads data and does not “make appropriate inquiries to determine the existence of facts and circumstances as a condition of claiming a deduction or credit,” according to the government.
In his 2016 filing season alone, he could not explain how he came to prepare 627 returns, claiming precisely $2,850 in non-cash charitable contributions.
Sandiego relies on the case of Cohan (Cohan v. Commissioner, 39 F.2d 540, 544 (2nd Cir. 1930) where “oral testimony can substantiate most all personal and business deductions” but this legal precedent only applies on non-cash charitable contributions over $250.
In the deduction for Employee Business Expenses in violation of Sec. 6694, Sandiego reported 357 of his customers drove exactly 25,163 miles during the 2016 filing season and 474 miles during the 2017 filing season.
SANDIEGO CLAIMS DOUBLE THE CAP AT $1,035
Although qualified energy efficiency improvements permit the customers to claim the Nonbusiness Energy Property Credit, which is limited to an aggregate cap of $500, plus additional caps of $200 for windows and $50 cap for circulating fans, Sandiego claims double the cap at $1,035 and “$2,250,154 in tax credits that he knew or should have known were incorrect.”
In 2016 filing season, Sandiego filed 1,984 returns, claiming Residential Energy Credits exceeding $500 for a total of 1,747 times in the amount of $1,065,383. In 2017, he filed 2,075 returns claiming Residential Energy Credits exceeding $500 for a total of 1,839 times in the total amount of $1,184,762.
The government also accused Sandiego with ghost-writing documents for his customer, citing the case of Loida Dacanay, whom he claimed as having “worked at both Heartland Manor and Lee Manor” in 2015 and claimed a deduction $6,987 altho she only had one job.
Sandiego was given opportunities to cease his dishonest conduct. He has instead engaged in misconduct of increasing severity. Moreover, Sandiego's “strong denial in this suit of all wrongdoing is hardly reassurance that he has now learned his lesson."
He is, instead, concerned with "lo[ing] his clients” so that he can continue to extract fees, apparently regardless of the effect on his customer.
Filipino American Internal Revenue Service Chicago-based Enrolled Agent (E.A.) Bert P. Gazmen of E. P. Gazmen and Associates said, “Sandiego's giving tax refunds to people who are not entitled to a refund is really inflating expenses of supposedly those who don’t have substantiation of charitable contributions and miscellaneous deductions. It is like phantom expenses. He is deducting on Schedule “C” and filing status of taxpayers even though they are married he filed with head of household with defendant and getting earned come credit and tax credit, that’s tax fraud. It is aiding and abetting to commit tax crimes. Most of his clients are even aggravated because of the tax liability they had encountered right now.”
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