Protecting Clients from Fraudsters

Fraud in the marketplace in an unfortunate reality. Protect your clients' real weath by being diligent in mitigating negative factors.

Real Wealth Managers who hold the Master Financial Advisor (MFA) or Distinguished Financial Advisor Specialist (DFA) designations are Educators, Advocates and Stewards in managing their clients’ real wealth — mitigating tax erosion, fee erosion, and economic erosion due to inflation and other factors, including fraud by others in the marketplace, which can cost taxpayers dearly in time, money, and stress. Recently, CRA fined a Winnipeg tax preparer who claimed fraudulent expenses for clients. What’s the issue for clients? Consider this fictitious example; then read about the conviction:   

Issue: Tom lost his job last year and turned to self-employment to make a living. At tax filing time, he used a new accountant, upon referral by friends, for the first time. She seemed to be doing a good job. His income rose, but his tax liability fell consistently year after year. Tom never questioned this, thinking she’s a pro, and the self employed must be eligible for more write-offs than employed persons. Over several years, it emerged that Tom had an accountant who was a procrastinator. She never filed his return on time, but always told Tom: "It's no problem, you're getting a refund!" Upon audit by CRA, it was discovered that the accountant created the refunds by padding Tom's expenses with amounts not supported by receipts. He was presented with a tax bill of thousands of dollars and hefty gross negligence penalties. What can he do?

Answer: Unless he can show that he made a concerted effort to file his tax returns on time and to understand the consequences of his self-employment, Tom will likely be stuck with the penalties — late filing, gross negligence, and interest costs. He should have questioned why taxes were falling when income was rising...turning a blind eye won’t cut it with CRA. What about the tax preparer? She too was penalized...just like the following conviction, published in late January by CRA:

“Rodrigo Diasnes Layco, pleaded guilty in the Provincial Court of Manitoba to charges of tax evasion for 2006. He has been fined $125,000 and received a two-year less-a-day conditional jail sentence. Mr. Layco owned RDL Computer Business Data & Consulting which provided a variety of services, including the preparation of income tax returns. The CRA identified a significant number of charitable donation receipts being claimed by clients of this tax preparer. The charitable donation receipts were issued by the CanAfrica International Foundation. This was a false donation scheme and Mr. Layco included claims for $3.1 million of such donations on income tax returns prepared by the business. Additional information was provided to the CRA that indicated some clients of Mr. Layco were also claiming false child care receipts. Mr. Layco was fined $33,000 for the claiming of the false child care receipts that resulted in $49,000 of federal tax refunds, and $92,000 for the charitable donation receipt scheme that created $138,000 of federal tax refund amounts. The fines he received represent 66% of the evaded taxes."