Yorba Linda Tax Accountant, Wife Contesting $11M Tax Bill
By JERRY MOSKAL
A Yorba Linda tax preparer and his wife are facing off with the Internal Revenue Service over the government’s demand for $11.1 million in extra taxes and penalties from the couple.
Samuel DeAngelo and wife Diana filed four petitions asking U.S. Tax Court in Washington, D.C., to overturn the IRS ruling, which covers 1999 to 2001.
Neither Samuel DeAngelo nor his tax attorney, Paul William Raymond of Newport Beach, returned calls seeking comment. Diana DeAngelo’s tax attorney, Gary A. Holford of Tustin, was reported on vacation and not available for comment.
No one answered repeated phone calls to the couple’s Yorba Linda home.
An IRS spokesman said the agency is barred by law from commenting on pending tax cases.
Last year, the Department of Justice Tax Division filed suit asking a federal court judge in Orange County to bar Western Tax Services Inc., Samuel DeAngelo and four others from preparing federal tax returns.
A department news release at the time described DeAngelo as the owner of Western Tax Services. The March 2003 release alleged that DeAngelo “acted as a return preparation coach and trainer of the other men.”
The release quoted IRS estimates made in court documents that alleged fraudulent tax returns prepared by DeAngelo and his four associates cost the government more than $31 million in lost revenue.
The IRS papers said one of DeAngelo’s associates, Joseph Gordon Shields of Orange, charged $1,500 to prepare a couple’s return that included $13,000 in false worker expense deductions and $1,000 in phony charitable contributions.
The agency has dunned the unnamed couple for $8,000 in back taxes and penalties.
In June, Shields agreed to a federal judge’s order barring him from preparing federal tax returns for seven years, a Justice Department news release said.
The cases seeking to bar DeAngelo and the three others from preparing tax returns are pending.
The other three tax preparers named in the case are Alan M. Hovey of Cathedral City, Jeffery R. Wright of Anaheim and Kelly David of Newport Beach.
DeAngelo and his wife complained in their petitions that their business and personal records, computers, cash and funds in checking accounts were seized in IRS Criminal Division raids on their home and DeAngelo’s Anaheim office.
The petitions said the couple has been denied access to the records they need in order to prepare a proper defense of the civil tax cases against them.
According to the petitions, Samuel DeAngelo had been in the tax preparation business for more than 30 years, first as a principal in Anaheim-based DeAngelo Tax Service and then with Western Tax Service, also of Anaheim.
“To date, none of the business records and documents have been returned to petitioner or Mr. DeAngelo, despite requests for same,” Diana DeAngelo’s petition said.
The tax demands from the couple mirror each other, seeking payment of the added taxes and penalties on the same income.
Each was ordered to pay $803,429 in extra 1999 taxes and penalties.
The IRS is seeking $4.7 million in 2000-01 taxes and penalties from Samuel DeAngelo, and $4.79 million in additional taxes and penalties from Diana DeAngelo for the same two-year period.
The couple’s petitions argued that the IRS erred when it ruled that each had more than $7 million in additional taxable income during the 2000-01 tax years and that each had $96,000 in taxable wages, salaries and tips in 2001.
Their petitions said that an IRS agent admitted “that she had seen and inspected the boxes of documents and records seized” in the IRS criminal investigation raid.
“Despite these admissions,” Samuel DeAngelo’s petition said, “the revenue agent refused to consider or allow petitioner the benefit of these records or documents” she used in adjusting the couple’s tax returns.
“The conduct and actions of the IRS and the revenue agent smack of bad faith, since they are refusing to allow petitioner access to the documents and records and are making adjustments without considering the records and documents in their possession,” the petition charged.
The IRS notices of deficiency were issued Oct. 10, and the agency has 60 days to file answers to the Jan. 12 petitions filed by Samuel DeAngelo and the Jan. 14 petitions filed by his wife.
If the IRS and the couple fail to negotiate a settlement, the cases could go to trial before a tax court judge.
The IRS assessed 75% civil tax fraud penalties against each. Besides the extra taxes and penalties, the IRS also is assessing the couple’s interest on the outstanding taxes due.
Moskal is a Washington, D.C.-area freelance writer covering U.S. Tax Court.
