A recent case in Ohio highlights the risks of working with dishonest tax return preparers and the severe consequences they face for manipulating tax filings. In this instance, an Ohio tax return preparer and his businesses were permanently barred from preparing federal tax returns for others after a court found evidence of fraudulent activity. This case serves as an important reminder to taxpayers about the importance of selecting a trustworthy tax professional and the dangers of working with preparers who take unethical positions on tax filings.

What Happened?

In this case, a tax preparer and his businesses were found to have engaged in fraudulent practices while preparing tax returns for clients. According to the complaint, the preparer had been filing hundreds of returns since at least 2020, with the vast majority of them claiming refunds—many of which were overstated. The preparer allegedly took unreasonable or incorrect positions on these returns, knowingly filing false information that understated the taxes owed by his clients and inflated the refunds they were entitled to.

Among the key fraudulent activities alleged in the complaint:

• False Business Losses and Expenses: The preparer falsely claimed business losses and employee business expenses that did not exist, leading to inflated refunds for his clients.
• Incorrect Filing Status: He knowingly reported incorrect filing statuses on tax returns, further manipulating the outcome of the tax filings.

As a result, the U.S. District Court for the Southern District of Ohio issued a permanent injunction against the preparer and his businesses, barring them from preparing any federal tax returns. He is also required to notify all past clients of the injunction and post the details online and at his business locations. The government is still pursuing a claim to recover the fees he received for preparing these fraudulent returns.

The Consequences for Tax Preparers

This case underscores the serious legal consequences for tax preparers who engage in fraudulent activities. The permanent injunction prevents the preparer from ever preparing federal tax returns for others again, and the court may require him to repay the ill-gotten gains he earned through tax preparation fees.

The IRS and the Justice Department have been actively pursuing legal action against tax preparers who violate the law, and hundreds of preparers have been enjoined in recent years. This serves as a warning to anyone in the tax preparation industry that engaging in unethical practices can result not only in the loss of their business but also in potential criminal charges, financial penalties, and lifelong career damage.

Protecting Yourself as a Taxpayer

While this case highlights the consequences for the tax preparer, it’s also a wake-up call for taxpayers. Working with unscrupulous preparers can lead to audits, penalties, and repayment of improperly claimed refunds. Here are some important steps to take when selecting a tax preparer:

• Verify Their Credentials: The IRS provides a directory of qualified tax professionals, which is a good place to start when searching for a trustworthy preparer. Look for professionals who are licensed and in good standing, such as Enrolled Agents, CPAs, or tax attorneys.
• Ask Questions: A reputable tax preparer will be transparent about how they handle your return and what deductions or credits they are claiming. If something seems too good to be true—such as unusually high refunds or dubious deductions—be cautious.
• Review Your Return: Even if you hire a preparer, you are still responsible for the information on your tax return. Always review your return before signing it and ensure that all the information is accurate and legitimate.
• Avoid Preparers Who Promise Big Refunds: Be wary of preparers who guarantee large refunds before even reviewing your financial information. This can be a sign that they are willing to take unethical or illegal shortcuts.
• Ensure They Sign Your Return: Tax preparers are required by law to sign the tax return and provide their Preparer Tax Identification Number (PTIN). If a preparer refuses to do so, this is a red flag.

Learn from Others’ Mistakes

This case serves as a reminder that cutting corners or working with unscrupulous tax preparers can lead to serious consequences. By taking the time to research and select a qualified tax professional, you can protect yourself from potential audits, penalties, and legal troubles. If you have concerns about your tax filings or the practices of your current tax preparer, it’s never too late to seek a second opinion from a trusted tax professional.

If you need assistance with your tax filings or are unsure if your current tax situation is compliant with IRS regulations, feel free to reach out to us. We are here to provide expert guidance and ensure your taxes are filed accurately and ethically, safeguarding your financial future.