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Estimated reading time: 2 minutes, 14 seconds

Firms Targeting Elderly Shut Down

Fraud Recovery GroupTwo tax preparation companies that specialize in serving the elder, and their owner, have been barred from preparing tax returns for others. A court in Columbus, Ohio, issued the order against Tobias Elsass and his companies, Fraud Recovery Group and Sensible Tax Services. The parties were taking 30 percent to 35 percent of some clients' refunds.

 The injunction also prevents the parties from promoting the availability of theft loss deductions, or engaging in any other tax-related business in the future. The court concluded that Elsass seemed "perfectly willing to lie and deceive, even to the extent of possibly committing perjury, in order to advance his own interests." The Department of Justice began seeking to force Elsass and his companies out of business in 2010.

The court found that Elsass and his companies promoted a nationwide scheme that falsely told clients they were entitled to claim large theft loss tax deductions, and then prepared the tax returns that improperly claimed such deductions. The court said Elsass and the companies preyed on elderly investors who had suffered financial losses by telling them they could receive large refunds.

Court documents alleged clients paid a fee of 15 percent of the anticipated refund, half in advance based on the estimated refund, and the other half when the refund was obtained. There was also a "deferred" fee of 30 percent, later 35 percent of refunds, but in either case, the companies simply filed returns seeking refunds without conducting research. The companies also inflated lossess and had clients sign powers of attorney to give the entities the right to carry forward the business.

Under federal tax law, victims of fraudulent investment practices, such as a Ponzi scheme, may properly deduct their financial losses as thefts only if they can substantiate that the losses were, among other things, the product of criminal conduct. The court said that hundreds of theft loss deductions claimed on tax returns prepared by Elsass and his companies were improper, because the financial losses they sought to deduct were merely the result of company mismanagement instead of criminal conduct.

The court also said Elsass and his companies knew that the Internal Revenue Service was disallowing such claims, but continued to file them for other clients.

In 1995, Elsass, then an attorney, was suspended from practice by the Ohio Supreme Court. He was said he was reinstated in 1998, but published reports quoted him as saying he chose not to pursue a law career. A minority of Supreme Court justices said he should have been disbarred.

In fact, in a 1998 action, the Columbus Bar Association filed a complaint against Elsass saying he violated the court's order and an Appellate Court order he be disbarred, not just permanently suspended.

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