A recent criminal tax investigation revealed tax preparers filed false tax returns for clients. Some of the taxpayers knew what was happening. Others, however, were surprised to learn how the tax pros [mis]handled their federal filings. (Getty Images for Unsplash+)
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Three Texas tax pros are headed to federal prison for filing false federal returns. Investigators say some clients knew of the scheme, but others did not. The case highlights why it’s important to ensure a tax preparer is reputable. Read on for the criminal case details and tips on hiring a trustworthy tax pro.
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A Texas tax return preparation business owner and two of his employees were sentenced this week to federal prison time for their roles in conspiring to file false returns on behalf of clients.
“Though they used a pencil and paper rather than a gun and a mask, these defendants are nothing more than common thieves,” said U.S. Attorney Justin R. Simmons for the Western District of Texas in announcing the prison sentences, which range from 18 months to more than four years.
Court documents and statements made in court showed that from approximately January 2019 to October 2022 the trio filed tax returns for clients that contained false business expenses.
These false expenses artificially reduced the taxes that the clients owed to the Internal Revenue Service. The filings also created fraudulent refund amounts for those clients. Overall, the Texas trio’s illegal tax filings cost the U.S. Treasury more than $5 million.
Who knew and when: The criminal tax conspiracy also involved varying levels of client awareness.
In some instances, the tax preparers’ false business expenses claims were made without their clients’ knowledge.
At other times, according to investigators, the preparers explicitly notified clients via email that they were submitting falsified information to the IRS.
Federal investigators have not said what, if any, action is being taken against the clients who knew of the scheme.
Guilty pleas, then to jail: But we do know the legal fate of the tax professionals, who this spring pleaded guilty to assorted charges arising from the tax conspiracy investigation.
Two entered their guilty pleas on March 10. The third pleaded out on March 24.
The tax firm owner admitted to conspiracy to defraud the IRS. He received the longest prison sentence, 50 months in a federal facility.
His two employees both pleaded guilty to aiding and assisting the filing of a false tax return. They were sentenced this week to 26 months and 18 months in prison.
Win for new DoJ division: The Department of Justice (DoJ) National Fraud Enforcement Division (NFED), which was created in April to consolidate investigations into fraud cases that involve taxpayer-funded programs, led the effort to build the cases against the tax preparers.
The Internal Revenue Service’s Criminal Investigation unit, the agency’s law enforcement arm, spearheaded the investigative activities.
Tax Felon Friday: The resolution of this case earns it a spot in the ol’ blog’s Tax Felon Friday feature.
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It also underscores the need for all taxpayers to carefully vet the tax professional they hire. My post Tax law changes highlight the importance of professional tax help has more on the various types of tax pros and how to thoroughly check out tax preparers before you hire them.
One of the signs that a tax pro probably isn’t on the up-and-up is that the preparer doesn’t want you to sign your return or asks you to sign a blank return.
Also beware ghost tax preparers who also skirt tax form signature requirements from their side of the filing. These tax pros, who made (again) the IRS’ 2026 Dirty Dozen tax scheme list, complete a client’s return, but refuse to sign it and/or refuse to include a Preparer Tax Identification Number (PTIN).
Either questionable signing situation usually is an indicator that your tax preparer is sketchy.
Taxpayer is ultimately responsible: Also note that even if you don’t know about a tax preparer’s illegal actions in connection with your tax return, once you do sign your Form 1040, you also are on the tax obligation hook.
Even if fraudulent entries are made your tax return without your knowledge, you still could be held liable for any unpaid tax associated with the filing.
So be careful when hiring tax help. You have lots of options. Do your homework and hire a reputable tax pro who will help save you taxes, rather than get you into tax trouble with Uncle Sam.
You can catch up on tax miscreants who have been charged and/or convicted and/or sentenced for their illegal actions at the aforementioned Tax Felon Friday page.
And if you want more tax crime news, notably items published long before I gave them a special end-of-week feature moniker (three years ago this week!), peruse the ol’ blog’s tax crimes category. You’ll find this post at the top of that collection right now, so just scroll down for more.
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