Inflated deductions, fictitious businesses, and misreported income are common patterns in tax fraud cases. The Levi Casildo Castro case from Houston is a little different because she was able to operate two different schemes concurrently out of the same business for a long enough period of time to cost the U.S. Treasury about $400,000. Castro, 40, entered a guilty plea in federal court on September 29 for willfully failing to collect and pay employment taxes and for helping to prepare false tax returns.
Castro ran A&M Home Remodeling and Cleaning and LC Home Remodeling and Maid Service, two home services companies in Houston. She deducted Social Security, Medicare, and federal income tax from her employees’ paychecks through those businesses. That portion is simple employer responsibility: funds owed to the federal government that are held in trust. She never sent it, which is the issue. Instead of going to the US Treasury, Castro kept the withheld money. Her staff probably thought their responsibilities were being met. They weren’t.
The tax preparation side ran concurrently with that. Castro did not have permission to work as a paid preparer for clients. It’s important to note that tax preparers who are paid must typically register with the IRS and receive a Preparer Tax Identification Number. Castro completely avoided that procedure. Her name was purposefully omitted from the paperwork by listing the clients as having filed their own taxes on the returns she prepared. In order to increase her clients’ earned income tax credits, those same returns included inflated Social Security and Medicare taxes, false wage figures, and inflated federal withholding amounts.
It’s important to consider what the earned income tax credit is and why it frequently appears in fraud cases. One of the federal tax code’s more significant anti-poverty measures is the Earned Income Tax Credit (EITC), which is intended to give lower-income working households significant refunds. It is also a target for preparers who are willing to falsify the underlying figures because it can yield large refund amounts, sometimes several thousand dollars. Inflating the numbers used in the credit calculation, collecting a preparation fee from the client, and abandoning the falsified return without your name on it constitute a fairly consistent fraud pattern. For many years, the IRS has been fighting EITC fraud. It is still an ongoing issue.
IRS Criminal Investigation, the IRS’s enforcement division with sole authority over Internal Revenue Code infractions, looked into Castro’s case. Assistant U.S. Attorney Adam Laurence Goldman is in charge of the prosecution. The guilty plea was accepted by U.S. District Judge Lee H. Rosenthal, who set a December 16 sentencing date. Castro faces a maximum fine of $110,000 and a maximum sentence of eight years in federal prison. Until that date, she was freed on bond.
When you look at cases like this one, you get the impression that the people who suffer the most are not the federal government, but rather the clients who might not have fully understood what was being done in their name and the employees who trusted that their payroll taxes were being handled. The clients in particular are in a difficult situation because their returns contain false information, and even after the preparer is found guilty, they may still face liability issues even though they were unaware of the details.
From Lynettia Profit of JNL Tax Services to Bobbie Zermeno’s more recent indictment for filing false returns over several years, Houston has seen a steady stream of tax preparer fraud prosecutions in recent years. The Department of Justice has made it clear through its National Fraud Enforcement Division that these prosecutions are a top priority, and the Castro case fits into that larger pattern of enforcement. The Castro case serves as a reasonable reminder to anyone who has ever given their tax documents to a preparer without first verifying their credentials: look up the name, confirm the PTIN, and confirm that the person filing on your behalf is truly authorized to do so.
