Martin Mohamed is dreading this tax season, mainly because he’s still dealing with the fallout from a massive tax fraud last year.
Mohamed is executive director of the African Credit Education & Counseling Agency, a small Minneapolis nonprofit that’s been overwhelmed with people seeking tax help since state and federal authorities began to crack down last spring.
The fraud, which involved thousands of refunds in the Twin Cities Somali community, was traced to a small group of Somali tax preparers. African Credit was not part of the group, but it’s been left to clean up some of the mess caused by others.
“This has been horrible for us,” Mohamed said, and “a disaster” for the Somali community. He estimated that it will take three to five years to fully address the tax problems and make restitution. And that’s just the financial cost, not the damage he believes has been done to the image of an entire immigrant community.
“People in the community, how are they thought about now?” he asks.
Jerry McClure, director of the state Revenue Department’s individual tax division, said that the department in the past nine months has reviewed 2,500 returns done by 11 Somali preparers for the 2003 tax year.
Almost all of the returns either overstated refunds or underpaid taxes.
“I would say that represents about $1.5 million to $2 million—and that’s what we caught,” McClure said. “At least that amount also escaped from our net. That’s not going to happen this year.”
The heaviest possible penalties would come from the ongoing Internal Revenue Service criminal investigation into the actions of several preparers. Late last year, the state filed tax liens against four of the Somali tax preparers, penalizing them $500 each and additional fees for each return found to demonstrate “willful attempts to understate liability.” The fraudulent returns included fictional dependents, improper business deductions and exaggerated income to maximize tax credits.
Yahya Shakal of Minnetonka, who was named in a IRS search warrant last year, was penalized $7,124.86 by the state. Abdirahman Adam of Minneapolis was penalized $7,530, while Ismail Mohamed of Minneapolis must pay the state $7,631.64. Jamal Noor, also of Minneapolis, must pay $9,140.16. McClure said that a fifth individual may face a state tax lien of $20,000 for filing 40 fraudulent returns.
John James, a lawyer for Shakal, said he believes the state has approached the matter appropriately, as a “community compliance problem” and a “civil matter.”
“It would be a crime to prosecute these young tax preparers criminally who didn’t truly know what they were doing,” Jones said.