DOJ Charges Tax Return Preparer Fraud in 2025

Federal prosecutors say tax return preparer fraud increased significantly during the fiscal year 2025 enforcement period, prompting a nationwide push targeting paid preparers accused of filing fraudulent income tax returns. Officials warn that taxpayers who relied on improper tax preparation services may face audits, penalties, or additional tax debt if false claims were filed in their name.

Federal Authorities Pursue Cases Against Fraudulent Preparers

Law enforcement officials from the Department of Justice and the Internal Revenue Service have intensified investigations into tax return preparers accused of widespread tax fraud and violations of tax laws. Prosecutors say some paid tax return preparers deliberately filed inaccurate tax returns, misrepresented filing status, or claimed credits that taxpayers did not qualify for under federal tax laws.

According to the IRS Criminal Investigation FY2025 Annual Report, which covers October 1, 2024, through September 30, 2025, investigators identified $4.5 billion in tax fraud during that fiscal year. That figure represents an increase of 111.8 percent from FY2024 and reflects expanded enforcement efforts across U.S. tax administration. The $4.5 billion is a fiscal year enforcement metric and does not correspond exclusively to a single tax filing season.

Investigators say many cases involve preparers manipulating Schedule C income, fabricating deductions, or improperly claiming the Earned Income Tax Credit. In some cases, investigators allege that preparers altered direct deposit information to redirect a portion of a tax refund into another bank account.

High-Profile Cases Reveal Large-Scale Fraud

Several major prosecutions highlight the scale of tax preparer fraud uncovered during recent investigations.

In Florida, the Department of Justice filed a civil action against Christopher Brown and his business, Superior Taxes LLC, alleging that Brown prepared federal income tax returns claiming fraudulent credits and deductions. According to the DOJ complaint, the scheme involved incorrect head-of-household filing status, false or inflated business expenses and losses, and fraudulent residential energy credits and education credits. The complaint alleges that Brown and Superior Taxes caused a tax loss exceeding $5 million across tax years 2022, 2023, and 2024.

A separate criminal prosecution in the Bronx, New York, involved Rafael Alvarez, known as "the Magician," the CEO, owner, and manager of ATAX New York, LLC, a high-volume tax preparation company. Federal investigators determined that Alvarez directed the preparation of approximately 90,000 federal income tax returns containing false information, including fabricated itemized deductions, made-up capital losses, phony business expenses, and fraudulent tax credits. The scheme ran from approximately 2010 through 2020 and caused a tax loss of approximately $145 million. Alvarez was sentenced to four years in prison.

Ghost Preparers Avoid Oversight by Leaving Returns Unsigned

Regulators say ghost preparers remain one of the most dangerous forms of tax return preparer fraud. These individuals prepare tax returns for compensation but fail to sign the return or include their Preparer Tax Identification Number. Under IRC § 6109, anyone who prepares a federal tax return for compensation must include a valid Preparer Tax Identification Number. By leaving the preparer section blank, ghost preparers shift legal responsibility to the taxpayer while avoiding regulatory oversight.

Two Augusta, Georgia, cases from 2025 illustrate the consequences of ghost preparer activity. Kim Brown, age 40, was sentenced to 22 months in prison after pleading guilty to two counts of aiding and assisting in the preparation and filing of false income tax returns. Allen Brown, age 41, was sentenced to 46 months in prison after pleading guilty to wire fraud conspiracy in connection with a related ghost preparer scheme.

Investigators say ghost preparer cases commonly involve fabricated Schedule C income, improper refundable credit claims, or altered tax documents designed to increase refunds.

Gaps in Preparer Oversight Continue to Concern Regulators

Oversight of paid tax return preparers remains uneven across the tax preparation industry. Credentialed return preparers, such as attorneys, certified public accountant firms, and IRS enrolled agents, must comply with the professional conduct rules outlined in Circular 230. Enrolled agents, licensed by the Treasury Department, must pass federal examinations and maintain continuing education requirements. State licensing agencies, such as the California Board of Accountancy, regulate certified public accountants and public accountants.

However, many paid tax return preparers are not required to meet competency or education standards. That gap stems partly from the court decision in Loving v. IRS, which limited the Internal Revenue Service's authority to impose broader tax preparer regulations.

Lawmakers Propose New Rules for Return Preparer Oversight

Policy experts say stronger oversight could reduce tax preparer fraud and improve compliance with federal tax laws. The National Taxpayer Advocate has repeatedly recommended new safeguards in the Purple Book of Legislative Recommendations. The Taxpayer Assistance and Service Act, introduced by Senators Mike Crapo and Ron Wyden, includes provisions addressing oversight of return preparers. Proposed sections of the legislation would allow the Treasury Department to suspend or revoke a preparer's identification number for misconduct. Advocates argue that stronger oversight could reduce tax preparation scams while improving accountability among paid tax return preparers.

Taxpayers Can Still Be Held Responsible for False Returns

Even when tax preparer fraud occurs, taxpayers remain legally responsible for the accuracy of their tax return. If investigators determine that false claims appear in income tax returns, taxpayers may be required to repay improper refunds along with penalties and interest. Investigators say fraudulent filings often include fabricated Schedule C income, inflated deductions, or improper claims related to refundable credits. In some cases, the tax preparer submits an e-filed return package that the taxpayer never fully reviewed.

Identity theft can also complicate these situations. Some taxpayers discover unauthorized filings only after receiving notices about refund fraud or unexpected direct deposit activity involving their bank account.

Officials Urge Careful Selection of Tax Professionals

Regulators advise taxpayers to verify the credentials of anyone providing tax preparation services. Credentialed return preparers include attorneys, certified public accountant firms, and IRS enrolled agents who hold unlimited representation rights before the Internal Revenue Service. Taxpayers should confirm that a preparer includes a valid Preparer Tax Identification Number on the tax return and provides a full copy of the e-filed return package and supporting tax documents.

Warning signs of tax preparer fraud include preparers who promise unusually large refunds before reviewing business records, charge fees based on refund amounts, or refuse to sign the return.

Reporting Suspected Tax Return Preparer Misconduct

Taxpayers who believe their tax return was improperly prepared can file a complaint with federal authorities. The Internal Revenue Service provides Form 14157, titled "Complaint: Tax Return Preparer," which allows taxpayers to report misconduct by tax return preparers. If the improper filing directly affects a refund or liability, taxpayers may also submit Form 14157-A to document preparer fraud. Additional reporting tools include Form 3949-A for suspected tax fraud and Form 14039 for identity theft. Authorities say these reports help investigators identify patterns of tax preparation scams and prevent further fraud.

Sources

• Justice Department Sues to Shut Down Miami Gardens Return Preparer and Business
• Bronx Tax Preparer Sentenced to Prison for Filing False Tax Returns Causing $145 Million in Fraudulent Tax Loss
• Augusta Ghost Tax Return Preparer Sentenced to Prison for Tax Fraud
  

‍By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now