Two Iowa income tax preparers whose professional advice included recommending clients deduct nonexistent furniture, unpaid rent and legal expenses for a man who was arrested during his bachelor's weekend celebration have been banned from preparing tax returns by a federal judge.
U.S. District Court Judge John Jarvey issued his order Tuesday against Clive residents Jill Schwartz-Musin and her husband Howard Musin, saying the couple converted "almost any of one's personal expenses into business deductions."
Prosecutors said the couple claimed more than $21 million in fabricated business expenses on clients' income tax returns.
"According to them, if you believe that looking successful helps make you successful, your clothes, hair care and manicures are deductible," Jarvey wrote. "If your dog barks while you are away from your home-based business, it's deductible. If your child's nanny has ever answered the business phone, the nanny is deductible. If you pay rent to yourself, or even if you don't, it's deductible. If you have a 6-year-old child, payments to the child are deductible employee expenses.
"And your hobbies, like scuba diving, pet cats and flying, easily deductible," Jarvey wrote.
His decision followed a lawsuit filed by the U.S. Department of Justice against the Musins in 2009, seeking to have them banned from being tax preparers. An eight-day trial on the lawsuit was held in January, which resulted in Jarvey's decision.
Court records show the Musins prepared more than 5,500 tax returns for clients across the country, many of them home-based businesses, between 2003 and 2006.
A telephone message left Thursday for the Musins, who primarily operated as SSC Services, Inc., was not immediately returned. Their attorney, Ronald Mountsier, said they are disappointed in the decision.
"We're reviewing it to see if there is a basis for an appeal," Mountsier told The Associated Press Thursday.
Contained in the 41-page ruling, filed in U.S. District Court in Davenport, are several examples of improper deductions the Musins took on client's returns, including rent on home office space although no actual rent was paid; repair and maintenance costs to one client's home, including the cost of chemicals to treat a fish pond and the costs of flower beds, a lawnmower, termite control and a pump for their well.
There also were deductions for office furniture that didn't exist; scuba diving and other vacations around the world; payments to nannies; Montessori school tuition that was deducted as "employee retirement benefits" and another school tuition as an "employee benefit program," the ruling said.
There were deductions for an entire year's grocery bill _ more than $6,000 _ and deductions for birthday, anniversary and wedding cards as "promotional awards."
In one case, the Musins advised a client to form a limited liability corporation so he could deduct his medical expenses for his son, who has autism. In other case, the criminal legal expenses for one client's adult son who was arrested in Florida during his bachelor's weekend celebration were deducted.
The ruling said the Musins "took numerous, unrealistic positions as to business deductions for ... quintessentially personal expenses."
It also said they "often took deductions for expenses or losses never actually incurred, such as numerous rent deductions taken when no rent was ever paid or the bed debt deduction when the ... debt was almost entirely repaid."
The ruling also said the Musins had on multiple occasions misrepresented themselves as certified public accounts. It also indicates that starting in 1987, the IRS and federal courts have imposed various sanctions against them.
On eight different occasions in 2003, Schwartz-Musin submitted false information on power of attorney forms and other documents stating she was not under suspension or disbarment from the IRS, the decision said. However, she was under disbarment from representing clients before the IRS for "conduct of this sort in 1987," the court said.
Schwartz-Musin pleaded guilty in 2000 to obstructing the administration of internal revenue law. She was sentenced to 90 days in community corrections, five months of home confinement and fined $15,000.
Nana Efua Embil, a justice department spokeswoman, said in an e-mail that she could not comment on what, if any further action is being taken against the Musins but that the government is not precluded from taking further action.
Lyndell Sheets, a Mary Kay director from Clive, said she and her husband, Stephen, who had their returns prepared by the Musins, were disappointed by what happened.
As a result, they were penalized by the IRS, Sheets said.
"By the time we were audited and the penalties, we paid back more than our refunds would ever have been," Sheets told the AP.
She declined to say how much they had to pay in penalties but said the IRS auditor "pretty much threw the book at us."