Fixing Somali Tax Mess Could Take Years

January 16, 2005

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."

Tax officials are using both an "iron fist" of enforcement and a "velvet glove" of education to eradicate any remaining fraud, McClure said.

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.

During 2003 and into 2004, a number of Somali preparers turned up in Somali street malls offering guaranteed refunds, according to the state. In exchange, those preparers often charged several hundred dollars or took a percentage cut of refunds from returns they embellished or fabricated.

Mohamed, a Somali who came to the United States seven years ago, said the refunds often were in the $2,000 to $5,000 range, and commonly represented between 10 and 25 percent of a filer's total income. In many cases, the filers never saw their completed returns.

Many incomes were inflated to earn more tax credits and those exaggerated incomes made some of the individuals ineligible for the subsidized housing they lived in. Tax problems also can imperil a person's attempt to gain citizenship.

African Credit has been able to resolve only about 10 percent of the cases it's seen related to fraud so far. Researching claims and working out payback schedules with federal and state authorities is a grueling, time-consuming task. Tax preparation used to be only a part of African Credit's services, but this work has exhausted most of the agency's time and resources.

"Our whole focus has had to change," Mohamed said.

As part of an educational and outreach effort, the state Revenue Department and the IRS are conducting a tax preparation workshop this month. Eleven Somali community preparers have agreed to attend even though Minnesota law does not require tax preparers to be licensed, nor does it mandate any training on tax law.

The Revenue Department and the IRS are placing warnings in Somali about tax preparation and Somali-language tax forms in ads in the Immigrant News, which Mohamed distributes to the community.

The state also will offer free tax consulting to the Somali community at 924 E. Franklin Av. starting Jan. 31. The services will be offered on Mondays and Thursdays.

Sadik Farah, a Revenue Department liaison to the Somali community, emphasized that people "who prey on the most gullible or susceptible members of the community are found in every community."

Mohamed thinks it would send a strong message if someone served jail time for the fraud. He also said that some good has come from a bad situation.

"They used to go to a friend or a relative," Mohamed said. "They will find out that there is a difference between those they know and those who know what they need to be doing."

Terry Fiedler, Star Tribune

Somalia | News | |