Criminal Charges for Return Preparer Fraud

A tax return preparer is any individual who accepts payment for preparing “all or a substantial portion of a tax return or claim for refund under … the Internal Revenue Code.” Making a little more income over tax season by preparing returns for family and friends could put you into the category.

Return Preparer Fraud is more than making mistakes on returns. The number of these criminal return preparer investigations initiated by the IRS has decreased slightly over the last three years, which is not surprising with diminishing agency resources. But the average prison sentence in these cases is 22 months, which means they must be taken seriously.

An East Texas example

The tax preparer was accused of inflating the amount of tax refunds. Then, he would intercept refund checks and divert additional refund amounts to his accounts. Unsuspecting customers later faced tax problems, including owing significant sums when the IRS caught the overpayments.

The preparer was charged with making false or fraudulent statements on tax returns, theft and aggravated identity theft. He pleaded guilty last summer. A judge recently handed down a 102-month federal prison sentence. He must also forfeit more than $110,000.

How many of these cases does the criminal investigation division handle each year? It has varied.

Criminal investigation data

In fiscal year 2016, the IRS initiated 252 investigations, recommended 174 prosecutions and chalked up a 72 percent incarceration rate.

Some of the issues that may trigger an investigation include:

• Manufacturing false deductions
• Inflating expenses whether personal or business
• Filing for credits that are not allowed – for example, claiming more dependents than the rules allow

At the first indication of an investigation it’s vital to take action. These statistics show the importance of speaking with a tax attorney immediately. An attorney may be able to help resolve the situation before criminal charges are ever necessary. Waiting and ignoring an IRS investigation is never the way to make it go away. It will come back and the consequences are harsh.