Maryland Taxpayer Protection Act & Tax Preparer Fraud

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The Taxpayer Protection Act (Senate Bill 304) in Maryland gives the State additional tools to help combat tax preparer fraud. The legislation takes effect on July 1st, 2017 and grants the Attorney General the power to act in the name of the Comptroller of Maryland and enjoin a person from acting as a tax preparer. A person can be enjoined for any types of fraudulent or deceptive activity that interferes with taxes or for misrepresenting a tax preparer’s experience. The officers of the Comptroller’s Office have also received additional powers to enforce laws involving income tax, sales and use tax, and tobacco tax in addition to previous enforcement powers.

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Another potential issue addressed by the Taxpayer Protection Act is the hiring of individuals to prepare taxes in Maryland. Previously, the law only restricted individuals from preparing taxes unless he or she was registered by the Board. The new Act will also bar a person from hiring an individual to prepare taxes unless that person is registered by the Board. The hiring issue is also addressed for false tax returns with a hired person being liable for a penalty not exceeding 100% of the tax due as a result of a false tax return when previously a hired person was not specified.

The Act also adds new penalties with a person being penalized $100 for each violation of failing to provide a required annual withholding reconciliation report. Also, an income tax preparer who attempts to evade any tax is guilty of a misdemeanor with a fine not exceeding $10,000 and/or imprisonment not exceeding 5 years. The penalty for attempting to evade a tax is now the same as the penalty for preparing a false income tax return to evade tax.

The new legislation is part of an overall strategy in Maryland to crack down on tax preparer fraud. The legislation will take effect alongside recent efforts by the Attorney General and Comptroller to combat some of the worst abusers. In January, four criminal cases were brought against defendants who allegedly defrauded the State of tens of thousands of dollars through tax return fraud. The State has also suspended 20 tax preparers as a result of numerous questionable returns from these preparers.


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