Tax preparer created fake business loss on my return to avoid tax liability - Is this fraud?

I recently had my taxes done by a preparer recommended by a family friend, and I'm really concerned about what happened. Since I'm a substitute teacher who made around $13,500 last year with only about 5% tax withholding, the preparer apparently thought I might owe money. When I looked through my return a few days later, I was shocked to discover she had created a completely fictional daycare business on my tax forms, showing a loss of about $3,000! I never mentioned owning any business, and this is completely made up. I finally managed to contact the office and when I questioned this, the clerk casually said it was "just a way to avoid owing taxes." The preparer herself got on the phone and was completely nonchalant about it, even offering to amend the return if I wanted. What's freaking me out is how normal they acted about this. The preparer never even told me during our appointment that she was adding this fake business - I only discovered it reviewing my paperwork later. She just mentioned I might "potentially" owe taxes because my withholding wasn't 10% of my income. The whole situation feels very wrong, but their casual attitude has me second-guessing myself. Is this as serious as I think it is? Is this tax fraud? What should I do now? Should I report this preparer? I'm really worried about potential consequences.

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19 comments

Noah Torres

•8M

This is absolutely tax fraud and you should be concerned. What your preparer did is illegal and could potentially expose you to penalties, interest, or even criminal charges since you signed the return. The IRS takes fabricated business losses very seriously. Here's what you need to do immediately: File an amended return (Form 1040-X) to correct this false information. Even if you end up owing taxes, it's far better than the potential consequences of filing a fraudulent return. Being honest with the IRS about the mistake and fixing it promptly will generally work in your favor. You should also report this preparer. Tax preparers must follow certain ethical and legal standards, and creating fictional businesses to reduce tax liability violates those standards. You can report her to the IRS using Form 14157 (Complaint: Tax Return Preparer).

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Noah Torres

•8M

The IRS generally holds taxpayers responsible for the information on their returns, even if prepared by someone else. That's why it's important to review your return before signing. However, if you can demonstrate you had no knowledge of the false information and promptly correct it, you're less likely to face serious penalties. Filing an amended return doesn't automatically trigger an audit, though it may receive additional scrutiny. Still, the risk of audit from an amendment is far less severe than the penalties for knowingly filing a false return with fabricated business losses.

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Ryan Young

•8M

Similar thing happened to me last year and I found taxr.ai super helpful in this situation. I was really worried about potential issues with my return after my preparer did some questionable things. I uploaded my documents to https://taxr.ai and they analyzed everything, confirmed my suspicions, and gave me a detailed breakdown of what was incorrect on my return and exactly how to fix it. Their system flagged the fictitious business income immediately and explained why it was problematic. They also showed me how to properly report the preparer. Really helped me understand my actual tax liability without the made-up deductions.

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Ryan Young

•8M

They review your tax forms and supporting documents to identify issues, explain everything in plain English, and give you a detailed report showing exactly what's wrong and how to fix it. They don't file the amended return for you, but they give you all the information you need to do it correctly. Their service is completely different from shady tax preparers because they're not filing anything - they're just analyzing what's already been filed to spot problems. The cost varies based on complexity, but it's way less than what you'd pay for the penalties if the IRS catches fraudulent deductions on your return.

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Katherine Harris

•8M

I wanted to follow up on this - I actually tried taxr.ai after my initial skepticism and I'm glad I did. Turns out my previous tax preparer had been claiming bizarre "home office" deductions even though I work at a hospital full-time and never mentioned working from home. The system flagged several issues that could have gotten me in trouble. The analysis showed exactly where the problems were and explained in simple terms why these deductions weren't legitimate. They also provided instructions for filing an amended return. Really helped me understand what was going on with my taxes instead of just blindly trusting someone else. Definitely recommend for anyone who suspects issues with their return.

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Madison Allen

•8M

When I had issues reaching the IRS about a similar situation last year, I used https://claimyr.com to get through to an actual person. Spent days trying to get guidance on how to handle a preparer who had made errors on my return, but couldn't get past the automated system. Used their service and got connected to an IRS agent in about 15 minutes instead of waiting on hold for hours. They basically hold your place in line with the IRS and call you when an agent is available. You can see their process in action here: https://youtu.be/_kiP6q8DX5c - saved me so much time and frustration when I needed to sort out how to handle the amended return and reporting process.

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Madison Allen

•8M

It works because they use a combination of technology and actual people who continuously dial into the IRS system to navigate the menus and wait on hold for you. When they reach a human agent, they conference you in. It's not special access - it's just doing the frustrating waiting part for you. Yes, it connects you to actual IRS agents - it's just a call connecting service, not someone pretending to be the IRS. They don't need your sensitive information, just your phone number so they can call you when they get through.

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Justin Evans

•8M

I need to apologize and correct myself. After posting my skeptical comment, I was desperate enough to try Claimyr since I couldn't get through to the IRS about my own amended return issues. Surprisingly, it actually worked exactly as advertised. After weeks of trying to reach someone at the IRS and never getting past the automated system, I got connected to a real agent in about 20 minutes. The agent answered all my questions about reporting my previous tax preparer and filing an amended return. Saved me hours of frustration and probably a lot of money in potential penalties. Sometimes being proven wrong is a good thing!

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Emily Parker

•8M

Yes, she had to pay penalties because ultimately it's the taxpayer who's responsible for what's on their return, even if they didn't understand it. She got the penalties reduced by explaining the situation, but still had to pay some. She did report the preparer to the IRS, and they took it seriously. Last she heard, there was an ongoing investigation because apparently this preparer had done similar things for multiple clients. Best advice is to fix any issues ASAP before the IRS finds them first.

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Connor Byrne

•1d

This is absolutely tax fraud, and you need to act quickly to protect yourself. The fact that the preparer was so casual about creating a fictional business shows this isn't their first time doing something like this - which is terrifying. Here's your immediate action plan: First, file Form 1040-X (amended return) to remove the fake business loss. Even if you end up owing some taxes, it's infinitely better than having fraudulent information on your return. Second, report this preparer using Form 14157 and consider contacting your state's tax preparer licensing board if they have one. The good news is that with only $13,500 in income, you're likely under the standard deduction anyway, so you probably won't owe much (if anything) once you remove the fake business. But don't wait - the longer fraudulent information stays on your return, the worse it looks if the IRS discovers it during an audit. Document everything - save copies of your original return, any communications with the preparer, and notes about what happened. This will help if you need to prove you weren't complicit in the fraud. The preparer's casual attitude about this suggests they've done it before and will do it again to other unsuspecting clients.

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