Accountants and Tax Preparers Beware: Zero Tolerance has Truly Arrived

October 30, 2010 | David W. Chodikoff
The recent decision of the Ontario Court of Appeal in R. v. Leo-Mensah confirms that courts will take a strict approach when sentencing tax advisors found to have engaged in the preparation or provision of false donation receipts.

Between the years 2003-2005, Paul Leo-Mensah prepared 801 tax returns for 300 different individuals. The tax returns prepared by Leo-Mensah and others instructed by him through his business contained false claims for charitable donations. The donation receipt for each claim was either fraudulent or missing from the individual’s tax returns. These false donation claims amounted to approximately $11.7 million and resulted in tax refunds of approximately $3.28 million being issued by CRA to Leo-Mensah’s clients. Leo-Mensah himself failed to report the income he made from his fraudulent scheme. Consequently, he was found to have evaded income tax of $42,457.00 in 2004 and $103,309.00 in 2005. In 2006, Leo-Mensah failed to file his tax return.

In the sentencing hearing before Justice Ray of the Ontario Court of Justice, Leo-Mensah pleaded guilty to three criminal offences: one charge of fraud and two charges related to income tax evasion. Leo-Mensah was a first time offender. The Crown sought a global sentence of four years less pre-sentence custody, plus a statutory fine of 100% of the taxes evaded. Since Leo-Mensah was in pre-sentence custody for 11 months, and because the court considered the time served on a “2 for 1 basis” (22 months), the Crown was actually seeking an additional 26 months of custody. Justice Ray acknowledged the seriousness of his crime and the fact that there had not been a substantial recovery of the money. However, the court only sentenced Leo-Mensah to time served plus one day and the 100% fine.

The Crown appealed the sentencing decision and asked that the sentence be increased. The Crown argued that the sentence was far too light considering the gravity of the offence. Justice Gillese, speaking for the Ontario Court of Appeal, agreed with the Crown’s position. According to Justice Gillese, there were three errors committed by the original sentencing judge. First, she failed to consider the value of the fraud. It was over $1,000,000 and was an aggravating factor. Second, the sentencing judge placed emphasis on Leo-Mensah’s childcare obligations when determining his sentence. At the hearing, though, there was no evidence before the court on the extent of his childcare obligations. Third, the sentence fell far below the range set by the Court of Appeal for large-scale fraud cases. Therefore, the appellate court determined that the sentencing judge had not given sufficient weight to the breach of trust, the abuse of charitable donation receipts, the size of the fraud and the key role that Leo-Mensah played in the scam. Accordingly, the Court of Appeal re-incarcerated Leo-Mensah for another two years.

Once again, this case demonstrates the continuing move by the justice system to a tougher approach towards those involved in activities aimed at defrauding the tax system.

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