Governor Andrew M. Cuomo today announced the FY 2021 Executive Budget includes new measures to mitigate tax fraud and crack down on bad actors in the tax preparation industry.
These proposed reforms come as New York has seen a rise in the number of "refund mills" where unscrupulous tax preparers file fraudulent returns to receive fraudulent refunds. While the Tax Department is often able to identify these schemes and prevent fraudulent refunds from being issued, the new measure will punish these preparers and protect unwitting taxpayers who ultimately are liable for the underreported taxes, interest, and penalties.
"The brunt of tax fraud is placed on hardworking, law abiding New Yorkers who follow the rules and pay their fair share," Governor Cuomo said. "We have zero tolerance for those who seek to break the law and rob New Yorkers in the process and with these reforms we will be able to better weed out bad actors and hold unscrupulous tax preparers accountable once and for all."
Specifically, the proposal creates two new crimes:
- Criminal tax preparation in the 1st degree, a Class C felony, for those accused of filing 50 or more returns knowing each return contains materially false information or omits material information with intent to evade or reduce a tax liability or to inflate a refund.
- Criminal tax preparation in the 2nd degree, a Class D felony, for those accused of filing 10 or more returns knowing each return contains materially false information or omits material information with intent to evade or reduce a tax liability or to inflate a refund.
The Budget also updates various fraud statutes in the State's tax law, removing language that has caused judicial confusion and clarifying that tax fraud statutes apply when an individual commits any tax fraud act that deprives or defrauds the Sate of tax liabilities. The Tax Department routinely investigates tax schemes where fraudulent actors file false returns with claims for unlawful tax refunds, or fail to file returns altogether. However, the provisions of the tax law have at times been legally interpreted to require that a person actually "pay" the State some amount of money before they could be found guilty of criminal tax fraud, allowing refund fraud to evade prosecution under these laws. The Budget clarifies that all tax fraud acts may be prosecuted under these statutes.