You Are Still Liable
This is the hardest conversation I have with clients. Your tax preparer lied on your return. They claimed deductions you did not have. They inflated your refund. You signed the return. Under the law, you are responsible for what is on that return regardless of who prepared it.
I know that feels unfair. You trusted a professional and they violated that trust. But the IRS does not care about your relationship with your preparer. They care about the tax that is owed.
What the IRS Does
The IRS audits the return and disallows the fraudulent deductions. They assess additional tax, plus the accuracy-related penalty of 20 percent, plus interest. If the fraud was egregious, they may assess the civil fraud penalty of 75 percent. The numbers get ugly fast.
Your Defenses
You have two main defenses. First, reasonable cause for penalty abatement. If you relied on the advice of a tax professional and had no reason to know the return was wrong, you can argue that the penalties should be abated. This requires showing that you provided accurate information to the preparer and that a reasonable person in your position would not have known the return was fraudulent.
Second, you can file a complaint against the preparer with the IRS Office of Professional Responsibility and pursue a civil lawsuit against them for damages. Recovery from the preparer is uncertain, especially if they have closed shop and disappeared, which happens often in fraud cases.
What a Tax Attorney Does
A tax attorney negotiates with the IRS to minimize your liability. We argue for penalty abatement based on reasonable reliance. We challenge any adjustments that are not supported by the evidence. We negotiate a payment plan for whatever balance remains. And we help you find a legitimate preparer going forward.