Appeals Court Upholds Return Preparer’s Conviction in RAL Wire Fraud Case

The Fourth Circuit Court of Appeals upheld the conviction of a Maryland tax return preparer for preparing false tax returns and for wire fraud, where the preparer used interstate wire communications to secure refund anticipation loans (RALs) for his customers based on the false tax returns (U.S. v. Mehta, docket no. 08-4489 (4th Cir. 2/5/10)). The court held that minor errors in the indictment and in the way the lower court estimated the total tax loss were harmless.

The defendant, Jiten Mehta, was a tax return preparer who, according to the testimony of six of his customers and two undercover IRS agents, fabricated and/or exaggerated itemized deductions on his clients’ tax returns. Mehta participated in a refund anticipation loan program through a participating bank and his tax preparation software vendor. In the course of transmitting taxpayers’ returns to the bank, receiving authorization for the RALs from the bank, and receiving his fees from the bank, the defendant used interstate wire communications.

As a result of the fabricated Schedule A deductions, Mehta was convicted in a U.S. district court in Maryland on 16 counts of aiding and assisting in the preparation of a false tax return under IRC § 7206. He was also convicted of 17 counts of wire fraud under 18 USC § 1343. The conviction for wire fraud required the government to prove that the defendant (1) knowingly and willfully participated in a scheme to defraud (that is, the preparation of false tax returns) and (2) used interstate wire communications in furtherance of that scheme.

On appeal, Mehta moved for acquittal on the wire fraud charges because the indictment stated the wire transfers for the defendant’s RAL fees originated in Michigan and were sent to Maryland, when in fact the wire transfers originated in North Carolina. The Fourth Circuit held that this mistake in the indictment did not prejudice Mehta; he would not have prepared his defense any differently if the indictment had correctly said North Carolina. Therefore, the court upheld the wire fraud conviction.

The defendant also appealed his sentence, arguing that the district court had improperly calculated the amount of tax loss resulting from the fraudulent returns. The district court had extrapolated the total loss from a subset of Mehta’s returns that the IRS had audited. The Fourth Circuit agreed that the district court’s use of a nonrandom sample was not correct, but held that the error was harmless. In sentencing Mehta, the district court chose an offense level that corresponded to a tax loss of between $1 million and $2.5 million, and the appeals court decided that it was reasonable to estimate that the total tax losses would fall in that range.

Mehta was sentenced to 48 months in prison.