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"If they have to buy $3,000 to $5,000 worth of equipment out-of-pocket that the military should provide, why shouldn't they be able to deduct it if it's used for business?"
Lou Ann Palermini Moser
Tax preparer for nearly 40 years
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But the federal government says these are improper deductions and is asking the courts to shut down Moser and Carla Newman from doing business as Accounting Services Trust at 549 Kaawakea Road.
The government filed a civil complaint Wednesday for a permanent injunction against the two, alleging that they are fabricating deductions for military expenses and creating sham corporations to improperly claim tax deductions for nondeductible personal expenses.
The two have filed hundreds of returns for customers, costing the federal treasury nearly $4 million in tax loss in 2003 alone, the complaint said.
According to the complaint, Moser faced penalties from the Internal Revenue Service in 1992 and 1993 for preparing false returns, but she continues to prepare returns that generate unlawful tax refunds for her customers.
Moser denies doing anything wrong. She asked why, if her actions violate IRS laws, she has never failed an audit and no one has tried to shut her down before: "To my knowledge, I have done nothing that haven't been approved in audits."
She said she was contacted a year ago by an IRS agent in Kailua-Kona telling her she was under investigation for tax shelter violations. She sent him all the information she had but never heard from him again. "I said, 'If this is not allowed, all you have to do is let me know,' but nobody called me."
She said she has spoken to military officials whom she declined to name, and they have confirmed the deductions are legitimate.
"If they have to buy $3,000 to $5,000 worth of equipment out of pocket that the military should provide, why shouldn't they be able to deduct it if it's used for business?" she said.
She said she discloses everything to clients, including a disclaimer that the IRS is investigating the legality of the deductions but has made no decisions. "I have paperwork covering each and every return," she said. She also signs the prepared returns as a trust manager, not a paid preparer.
Newman, who owns an antiques store in Kailua, is not connected to the trust, but agrees to file the returns electronically for the clients, Moser said. Newman declined comment.
Moser said she has no control or access to clients' money because the refunds are deposited directly into their bank accounts in most instances. She does not make any money from preparing tax returns, and the $190 fee paid by customers goes into the trust and to the company that files the returns electronically, she said.
Moser said she was under indictment for preparing false tax returns almost a decade ago, but the charges eventually were dismissed.