Tax preparer fraud can leave an innocent taxpayer with an IRS audit, an unexpected balance, and years of interest. When a preparer invents fuel-tax credits, business losses, deductions, or expenses, the IRS can remove those items and recalculate the return. The taxpayer may then have to repay an improper refund or pay the tax that should have appeared on the original return.

The key point is simple  The preparer may face criminal consequences, but the client still has to resolve the tax account.

What Happened in a Recent Case

On October 9, 2026, the Department of Justice announced that a Long Island tax preparer had been convicted on all 18 counts against him. Prosecutors said the preparer filed returns containing fictitious fuel-tax credits, invented business expenses, false business losses, and other fraudulent tax benefits. The government alleged that the scheme caused more than $1 million in tax losses.

The prosecution focused on the preparer. But each false return may also create a separate problem for the taxpayer whose name and Social Security number appear on it.

Source  Department of Justice announcement

Why the Client Can Still Owe the IRS

The IRS generally holds taxpayers responsible for the information reported on their returns, even when someone else prepared them. If the IRS disallows an improper credit or an invented business loss, it recalculates the return without that item.

The taxpayer may then face:

•  Repayment of an improper refund

•  Additional federal income tax or self-employment tax

•  Interest on the unpaid tax

•  An accuracy-related or erroneous-refund penalty

•  A reduced refund on a later return

•  Collection notices, tax liens, or levies if the balance remains unpaid

A preparer’s conviction does not automatically correct every affected client’s IRS account. It also does not automatically stop an examination or collection action.

Source  IRS guidance on tax return preparer misconduct

How a False Refund Can Become a Large Tax Debt

Assume a preparer invents a credit that produces a $20,000 refund. The client spends the refund believing the return is correct. Three years later, the IRS disallows the credit.

The client may now owe the $20,000, interest running from the original payment deadline, and possibly a penalty. Even if the preparer is later convicted, the client’s IRS account does not automatically disappear.

Why Interest Continues When the Preparer Caused the Problem

Interest is often the hardest part for an innocent client to accept. The client may reasonably ask why several years of interest should be charged when the preparer created the false entry.

In general, interest runs on unpaid tax from the original due date until the tax is paid. Interest is meant to account for the time the tax remained unpaid. It is not treated the same way as a punishment for intentional wrongdoing.

The IRS has limited authority to remove interest. Interest abatement is generally associated with an unreasonable error or delay by the IRS, not fraud or error committed by a private tax preparer. A taxpayer may therefore have a strong argument against a penalty but still owe the correct tax and much of the interest.

Source  IRS Topic 653 on penalties and interest

Can the Client Obtain Penalty Relief

Possibly, but relief is not automatic. A taxpayer may request penalty relief by showing reasonable cause and good faith. Helpful evidence may include:

•  The taxpayer supplied accurate information to the preparer

•  The preparer changed the return without permission

•  The taxpayer received a different copy from the return actually filed

•  The taxpayer did not receive or control the full refund

•  The false item was hidden in an unfamiliar form or schedule

•  The taxpayer reasonably relied on a qualified professional

•  The taxpayer acted promptly after discovering the problem

Simply saying that the preparer caused the problem may not be enough. The taxpayer needs documents showing what information was provided, what the preparer promised, what the taxpayer reviewed, and what was ultimately filed.

Source  IRS reasonable cause guidance

Why the Difference Between a Victim and a Participant Matters

The evidence may show that a preparer secretly changed the return after the client supplied correct information. That is very different from a taxpayer who knew the refund was impossible, signed a blank return, agreed to invented figures, or deliberately ignored obvious warning signs.

The taxpayer’s knowledge and conduct can affect credibility, penalty relief, and potential civil or criminal exposure. That is why the facts should be reviewed carefully before the taxpayer sends an amended return, affidavit, or explanation to the IRS.

What Happens When the Preparer Changed the Return

The IRS has a procedure for reporting return-preparer fraud or misconduct. Depending on the facts, the taxpayer may need to provide:

•  Form 14157, Return Preparer Complaint

•  Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit

•  The return the taxpayer believed would be filed

•  The return that was actually filed

•  Bank records showing where the refund was deposited

•  Emails, text messages, advertisements, invoices, and payment records

•  A police or law-enforcement report when appropriate

Filing a complaint against the preparer is not the same as resolving the client’s tax account. Both problems must be addressed.

Source  IRS Form 14157-A and victim assistance instructions

Could the New Jersey Return Also Be Affected

Yes. An improper federal fuel-tax credit may not directly change New Jersey income. However, an invented business loss, false expense, omitted income, or other federal adjustment may affect the New Jersey return.

If an IRS adjustment changes New Jersey taxable income, New Jersey generally requires the taxpayer to notify the Division of Taxation and file an amended return within 90 days. The taxpayer may then face a separate New Jersey assessment, interest, penalties, and collection activity.

The federal and New Jersey matters must be handled separately. Resolving the IRS examination does not automatically correct the New Jersey account.

Source  New Jersey amended return instructions

What a Taxpayer Should Do After Discovering a False Return

Do not begin by allowing the same preparer to file another return or send an explanation. First, obtain and preserve the evidence:

1. Download the filed return and IRS account and wage transcripts
2. Compare the filed return with the copy the preparer provided
3. Identify every unfamiliar credit, deduction, business, dependent, or loss
4. Confirm where the refund was deposited
5. Save communications, advertisements, invoices, and payment records
6. Do not alter or destroy original documents
7. Obtain independent advice before submitting an amended return or statement

A rushed explanation can create additional problems, particularly when an examination is already open or the IRS believes the client knew about the false items.

Do Not Wait for the Criminal Case

Do not wait for the preparer’s sentencing, restitution order, disciplinary proceeding, or criminal appeal before addressing the tax returns. Those proceedings do not suspend the client’s IRS or New Jersey deadlines.

The government’s case against the preparer and the taxpayer’s account dispute are separate matters. Missing an audit response, appeal, Tax Court, or state protest deadline can make the client’s position substantially worse.

What If the Tax Is Correct but the Client Cannot Pay

Proving preparer misconduct may help correct the account or support a request for penalty relief. It does not necessarily eliminate tax that was legally due. If a correct balance remains, the taxpayer may need a tax-resolution strategy such as:

•  An installment agreement

•  A partial-payment installment agreement

•  Currently not collectible status

•  An offer in compromise

•  A collection appeal

•  A request for penalty abatement

The correct option depends on the taxpayer’s income, necessary expenses, assets, remaining collection period, and ability to pay.

The Bottom Line

Tax preparer fraud can create two separate cases. The first is the government’s case against the preparer. The second is the taxpayer’s case with the IRS and, in some situations, the New Jersey Division of Taxation.

A conviction may punish the preparer, but it does not automatically remove the taxpayer’s additional tax, interest, penalties, or collection risk. The taxpayer must document the misconduct, correct the accounts, address any penalties, and develop a plan for any tax that legally remains due.

If you believe a preparer placed false credits, losses, deductions, or expenses on your return, do not ignore the problem and do not allow the same preparer to fix it without an independent review.

Tomes Law Firm helps New Jersey taxpayers address IRS audits, incorrect returns, tax-preparer misconduct, and resulting collection problems. Contact the tax resolution attorneys and accountants at 732-333-0681 or 833-4IRS-TAX. We Solve Tax Problems. You Get Peace of Mind