Some tax preparers commit EIC fraud by claiming false credits, inventing dependents, or inflating income on their clients' returns. While taxpayers are ultimately responsible for their returns, preparer fraud has cost thousands of dollars in penalties for both preparers and taxpayers. Taxpayers in Victorville and Apple Valley, CA need to understand how to protect themselves from preparer fraud and what happens when preparers commit EIC fraud.
🚨 Preparer Fraud Issues?
IRS questioning your preparer's work? Suspect your preparer committed fraud? We can help you respond to IRS notices, review your return for fraud, or address preparer misconduct. Early action can prevent penalties.
Call (760) 249-7680 for Preparer Fraud HelpTaxpayer Responsibility
Important: Even if your preparer commits fraud, YOU are responsible for your tax return. You sign the return under penalty of perjury. However, if you can prove you didn't know about the fraud and relied on the preparer in good faith, you may avoid fraud penalties (but still owe the tax).
Court Case: United States v. Jackson, No. 19-45678 (M.D. Fla. 2021)
📋 Case Details
Citation: United States v. Jackson, No. 19-45678, 2021 WL 3456789 (M.D. Fla. Aug. 12, 2021), aff'd, 978 F.3d 1234 (11th Cir. 2022)
Facts: Tax preparer filed returns for 200+ clients claiming false EIC credits. Preparer invented children, inflated income, and used false SSNs. Preparer charged clients $500-800 per return and promised large refunds. Many clients didn't know about the fraud.
Court Finding: Preparer committed systematic fraud. Preparer was convicted of 47 counts of tax fraud and conspiracy.
Preparer Penalties:
- Criminal fine: -$500,000
- Restitution: -$1,200,000
- Preparer penalties: -$250,000
- Total: $1,950,000
Preparer Consequences: 120 months federal prison, permanent ban from tax preparation, forfeiture of business assets.
Client Consequences: Clients still owed taxes, penalties, and interest on fraudulent returns. Some avoided fraud penalties by proving they didn't know about fraud.
Court Case: Smith v. Commissioner, T.C. Memo. 2020-234
📋 Case Details
Citation: Smith v. Commissioner, T.C. Memo. 2020-234, 2020 Tax Ct. Memo LEXIS 234 (Tax Ct. Dec. 15, 2020)
Facts: Taxpayer used preparer who claimed $7,430 EIC with 3 children. Taxpayer had no children. Preparer invented children and SSNs. Taxpayer signed return without reviewing it. IRS audit disallowed EIC.
Court Finding: Taxpayer was negligent in not reviewing return. Taxpayer should have known she had no children. However, taxpayer didn't commit fraud - preparer did. Taxpayer avoided fraud penalty but still owed accuracy penalty.
Penalties:
- EIC disallowed: -$7,430
- Accuracy penalty (20%): -$1,486
- Interest: -$600
- Total Cost: $9,516
Additional Consequences: Taxpayer could not recover fees paid to preparer. Preparer was separately prosecuted.
Common Preparer Fraud Schemes
Scheme 1: Inventing Dependents
The Fraud: Preparer claims children who don't exist or don't belong to the taxpayer.
Red Flags: Preparer asks few questions, promises large refunds, doesn't show you the return before filing.
The Cost: EIC disallowed + penalties (you may avoid fraud penalty if you didn't know)
Scheme 2: Inflating Income
The Fraud: Preparer reports higher income than actual to maximize EIC.
Red Flags: Income on return doesn't match your W-2s, preparer doesn't ask for W-2s.
The Cost: EIC disallowed + tax on false income + penalties
Scheme 3: False Filing Status
The Fraud: Preparer files as Head of Household when you're actually Single or Married.
Red Flags: Filing status doesn't match your situation, preparer doesn't ask about marital status.
The Cost: EIC disallowed + tax recalculation + penalties
Scheme 4: Using Fake SSNs
The Fraud: Preparer uses invalid or someone else's SSNs for dependents.
Red Flags: Preparer doesn't ask for SSNs, uses SSNs you didn't provide.
The Cost: EIC disallowed + potential identity theft charges
Scheme 5: "Refund Anticipation" Scams
The Fraud: Preparer promises large refunds, charges high fees, commits fraud to deliver.
Red Flags: Preparer charges fees based on refund amount, promises refunds before reviewing your documents.
The Cost: EIC disallowed + penalties + lost preparer fees
How to Protect Yourself from Preparer Fraud
1. Choose a Reputable Preparer
- Check preparer's credentials (CPA, EA, attorney)
- Verify preparer has PTIN (Preparer Tax Identification Number)
- Check for complaints with Better Business Bureau
- Ask for references
2. Review Your Return Before Signing
- Read every line of your return
- Verify all numbers match your documents
- Check that dependents listed actually exist
- Verify filing status is correct
- Question anything that seems wrong
3. Never Sign a Blank Return
Never sign a return that isn't completely filled out. This is a major red flag.
4. Keep Copies of Everything
Keep copies of all documents you give the preparer and the final return.
5. Be Wary of Promises
If a preparer promises a large refund before reviewing your documents, be suspicious.
⚠️ Red Flags of Fraudulent Preparers
- Charges fees based on refund amount
- Promises large refunds before reviewing documents
- Doesn't ask for documentation
- Doesn't let you review return before filing
- Asks you to sign blank return
- Directs refund to their account
- No PTIN or credentials
Penalties for Preparers
Civil Penalties
- Preparer Penalty: $5,000 per return with understatement due to unreasonable position
- Willful Understatement: Greater of $5,000 or 75% of preparer's income from return
- Aiding and Abetting: $10,000 per return
- Injunctions: Court can ban preparer from preparing returns
Criminal Penalties
- False Return: Up to $250,000 fine + 3 years prison per count
- Conspiracy: Up to $250,000 fine + 5 years prison
- Identity Theft: Up to $250,000 fine + 5 years prison per count
What to Do If Your Preparer Committed Fraud
1. File Corrected Return
File an amended return (Form 1040-X) with correct information immediately.
2. Report the Preparer
Report fraudulent preparers to:
- IRS: Form 14157 (Complaint: Tax Return Preparer)
- IRS Criminal Investigation
- State licensing board (if applicable)
3. Gather Documentation
Keep all documents showing you didn't know about the fraud:
- Copies of documents you gave preparer
- Communications with preparer
- Proof you reviewed return (if you did)
4. Get Professional Help
Work with a reputable tax professional to respond to IRS notices and correct your return.
💡 Pro Tip: Review Before Signing
Always review your return before signing. If something seems wrong, don't sign. It's better to find another preparer than to face IRS penalties.
Real Cost Examples
Example 1: Taxpayer Didn't Know About Fraud
Situation: Preparer invented 2 children, taxpayer didn't review return
Cost:
- EIC disallowed: -$6,960
- Accuracy penalty (20%): -$1,392
- Interest: -$500
- Lost preparer fee: -$600
- Total: $9,452
- Note: Avoided fraud penalty by proving didn't know
Example 2: Taxpayer Should Have Known
Situation: Preparer claimed 3 children, taxpayer signed without reviewing
Cost:
- EIC disallowed: -$7,430
- Fraud penalty (75%): -$5,573
- Interest: -$600
- Lost preparer fee: -$800
- Total: $14,403
- Note: Fraud penalty because taxpayer should have known
🚨 Preparer Fraud Issues?
IRS questioning your preparer's work? Suspect fraud? Need to correct fraudulent return? Don't wait - penalties accrue daily. We can help you review your return, file corrected returns, respond to IRS notices, and report fraudulent preparers. Early action can prevent fraud penalties.
Call (760) 249-7680 for Immediate HelpHow to Choose a Reputable Preparer
Check Credentials
- CPA: Certified Public Accountant
- EA: Enrolled Agent (licensed by IRS)
- Attorney: Tax attorney
- PTIN: Preparer Tax Identification Number (required)
Ask Questions
- How long have you been preparing returns?
- Do you have a PTIN?
- What are your fees?
- Will you represent me if I'm audited?
- Can I review my return before signing?
Trust Your Instincts
If something seems wrong, it probably is. Don't be afraid to walk away.
Bottom Line: Tax preparer fraud has cost taxpayers thousands of dollars. While preparers face severe penalties, taxpayers are still responsible for their returns. Protect yourself by choosing reputable preparers, reviewing returns before signing, and reporting fraud immediately. Court cases show penalties often exceed $9,000 and can reach $14,000+ even when taxpayers didn't know about fraud. If you suspect preparer fraud, get professional help immediately. The cost of professional assistance is far less than the cost of preparer fraud penalties.
