A Tax Court judge ruled that taxpayers are expected to use at least a “minimal of average intelligence” when filing their tax returns, according to Blacklock’s Reporter. .This statement was made when a tax filer submitted a false return and claimed he did not understand what he was doing..“He was educated, at a minimal of average intelligence and had the opportunity to review the return and its contents but decided not to,” wrote Justice Kathleen Lyons. The Court upheld a 50% penalty for gross negligence..“In my view, he chose not to inquire because he strongly suspected or suppressed a suspicion that the inquiry would have provided him with knowledge the statement in the return was false, thereby he would have discovered such inconvenient truth,” wrote Justice Lyons. .“This amounts to willful blindness.”.The judgment was made in the case of a Windsor, ON, electrician who filed a 2009 tax return claiming a $20,948 refund with an income of $69,771. .However, it was revealed that the claimed refund was based on “fictitious” business losses, which were promoted by a now-defunct tax preparer named Fiscal Arbitrators (FA) from Markham, ON..The electrician testified he “spent five minutes and signed it without reviewing” the return, claiming he was a “slow reader.” Tax Court dismissed the excuse..“His job required him to read and be familiar with numbers,” wrote Justice Lyons. .“I find he had a sufficient level of reading comprehension that would have equipped him to notice something was amiss had he taken the time to review the return and its contents.”.“Even if he did not understand the finer details that go into the preparation of a tax return or understand tax matters, he could have questioned the refund,” said the Court. The conduct was “a marked departure as to what a reasonable taxpayer would have done.”.From 2008 to 2014, FA operated as a tax consulting company advising clients on how to claim false business losses to obtain refunds from the Canada Revenue Agency (CRA). This advice was given to clients regardless of whether or not they operated a legitimate business..Under the FA scheme, clients agreed to pay a large portion of undeserved tax refunds as FA commissions, typically 20%, in exchange for help falsifying returns. Clients often claimed exorbitant losses as “agents” in unspecified trades..In 2016, Lawrence Watts, the founder of FA, was convicted of fraud and given a six-year prison sentence. However, the CRA has never disclosed the exact number of FA clients it audited..In the case of the Windsor electrician, the FA fabricated a business loss of $333,418, which resulted in the complete elimination of the client's 2009 tax bill and even carried back the false losses to offset taxes from 2006..“The $333,418 amount was mentioned nine times in the return, the request and business activities form, yet he had no business,” wrote Tax Court..According to records from the Ontario Superior Court, there are at least 241 cases where tax filers claimed $64.3 million in made-up business losses..In 2019, government auditors imposed a 71% penalty on a client of FA who had submitted a false tax return.
