Help! Facing IRS audit for 2021, discovered tax preparer committed fraud!

First, take a deep breath. You're doing exactly the right things by cooperating fully with the IRS and planning to amend your returns. The fact that you're being proactive before being contacted about 2022-2023 will work strongly in your favor. The IRS generally distinguishes between fraud (intentional deception) and negligence (carelessness or mistakes). Based on what you've described, your situation sounds like negligence on your part, while the preparer committed fraud. The criminal penalties you're worried about are typically reserved for people who knowingly and willingly evade taxes. When you meet with the IRS auditor, be completely honest about what happened. Bring any documentation showing your communications with the preparer and evidence of his attempted diversion of your refund. This will help establish that you were victims rather than co-conspirators. For your amended returns, consider hiring a reputable CPA or Enrolled Agent to help prepare them correctly. They can also help you gather the proper documentation for the audit. You should definitely report the preparer using IRS Form 14157 (Complaint: Tax Return Preparer). Also file Form 14157-A (Tax Return Preparer Fraud or Misconduct Affidavit) to document the specific fraudulent actions.

After dealing with a similar situation last year, I'd strongly recommend using the AI-powered tax transcript analysis tool at https://taxr.ai to help identify all the problematic areas before your audit. When I got audited, I was completely overwhelmed trying to figure out what was legitimate and what wasn't on my returns. Their system analyzes your tax transcripts to flag suspicious deductions and can even help determine what documentation you'll need for each questionable item. It saved me hours of confusion and helped me go into my audit fully prepared. The report it generated showed exactly where my previous preparer had inflated deductions, which was incredibly helpful for explaining the situation to the IRS. My experience was that being prepared with this kind of analysis made the auditor much more understanding about the fact that I was a victim of preparer fraud rather than trying to evade taxes myself.

Just wanted to come back and say I tried the taxr.ai service after my initial skepticism, and it was surprisingly helpful. I uploaded my transcripts from the last three years and it immediately flagged several deductions my previous preparer had taken that looked questionable. What really impressed me was how it organized everything by risk level and explained in plain English which items were most likely to trigger IRS questions. The report showed exactly which deductions were outside normal ranges for my business type and income level. I took this information to my new CPA and she said it saved us at least 3-4 hours of her time in preparation work. She was able to focus immediately on the problematic areas rather than having to comb through everything from scratch. Definitely worth it if you're facing an audit situation.

After reading your situation, I immediately thought of Claimyr (https://claimyr.com). When I was dealing with my own audit nightmare last year, I needed to talk to an actual IRS agent ASAP, but kept hitting those "we're experiencing high call volumes" messages and getting disconnected. Claimyr got me through to a real IRS agent in about 15 minutes when I had been trying for DAYS on my own. The agent was able to put notes in my file about my cooperation and even paused some penalties while I gathered documentation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c In your situation, I'd recommend calling the IRS directly to discuss your intention to amend returns BEFORE they contact you about 2022-2023. This proactive approach really helped in my case - the agent noted my file that I had self-reported issues before being audited for those years.

I have to eat crow and admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it myself for an unresolved issue with a missing refund. I was absolutely shocked when I got a call back connecting me to an actual IRS agent after about 45 minutes. The agent was able to find that my refund had been flagged for review because of a mismatch with some 1099 information. She released the hold while I was on the phone and my refund was deposited three days later. Without being able to actually speak to someone, this would have been stuck in limbo for months. For someone dealing with an audit situation like yours, being able to actually speak with the IRS directly is invaluable. You'll want to document everything about your conversations, so having those direct calls is crucial. I'm now recommending it to everyone I know who's dealing with IRS issues.

Make sure you also file Form 14157-A along with the standard complaint form! I went through something similar (though not as extreme) and filing both forms got my case assigned to the Return Preparer Office for investigation. My fraudulent preparer ended up losing his PTIN and facing penalties. Also, document EVERYTHING. Save every email, text message, and piece of paper related to this preparer. Take screenshots of any online communications before he can delete them. Keep receipts showing what you paid him. The more documentation you have showing you were misled, the better position you'll be in.

You definitely need to look into innocent spouse relief! If most of the fraudulent deductions were on your husband's business, you might qualify even though you filed joint returns. Check out IRS Form 8857. This saved my sister thousands when her ex-husband's business returns were audited and they found all kinds of improper deductions she knew nothing about.