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Chula Vista tax man admits fraud Neal Putnam - The Star-news Correspondent | Fri, Mar 26 2010 04:16 PM

A former tax return preparer who had an office in Chula Vista has pleaded guilty to committing tax evasion and mail fraud in connection with a scheme to defraud his clients out of $1 million.

David R. Canales, 53, who also lives in Chula Vista, will be sentenced on May 24 by U.S. District Court Judge Thomas Whelan. Canales remains free on $40,000 bond and wears a GPS monitoring device, his attorney said.

He faces a maximum sentence of 20 years in federal prison and a $250,000 fine. Federal sentencing guidelines suggest a lesser sentence between 41 to 51 months, court records say.

His bookkeeping and tax preparation business was called Executive Management Services and it went out of business in April 2008.

The tax evasion count involves income of $130,184 he received in 2005 which he did not report on his income tax return. The money was deposited in other bank accounts.

Canales admitted he set up two bank accounts under fictitious business names of International Recovery Systems/IRS and Freight Transport Brokers/FTB, which have the same initials as the Internal Revenue Service and Franchise Tax Board.

His tax preparation clients would write checks to the IRS and FTB, thinking that Canales was forwarding their tax payments to those agencies. Instead, Canales would deposit their checks into his accounts which he used to pay personal expenses, according to court records.

Canales prepared two versions of tax returns for some clients. Some returns showed little or no tax owed, and those were filed. Other returns showed clients owing more money to the IRS than they really owed.

In his guilty pleas, Canales admitted he caused losses of $1 million to his clients and evaded payment of his own income taxes on $457,653 in income through 2003-2007.

"Canales took advantage of his clients who thought they were hiring an honest tax specialist to assist them with complying with the United States tax laws," said U.S. Attorney Karen Hewitt in a news release. "This case demonstrates just how careful the public must be when choosing a tax specialist."

"Paid preparers are a critical component in our system of tax administration," said J. Russell George, the Treasury inspector general for tax administration, in a press release. "When preparers violate the law, they harm their victims and severely damage the credibility and reputation of the tax preparation community."

The prosecutor wants a court order requiring  Canales' clients be paid $1,021,063.

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