An Augusta, Georgia, man has pleaded guilty to wire fraud conspiracy related to a “ghost” tax preparation business. As a result, Allen Brown now faces up to 20 years in prison. It’s a good reminder to steer clear of ghost tax preparers.
A ghost preparer is a tax preparer who isn’t on the IRS’s radar because they do not have a Preparer Tax Identification Number (PTIN). To remain hidden, a ghost preparer will accept payment from a taxpayer to prepare a tax return but will not sign the return, which means the return will appear to be self-prepared. (For e-filed returns, the ghost preparer typically prepares the return but refuses to digitally sign as the paid preparer.)
By law, anyone paid to prepare or assist in preparing federal tax returns must have a valid PTIN. Paid tax preparers are required to sign and include their PTIN on the taxpayer’s return. However, some tax preparers do not do this—those preparers are known in the industry as ghost preparers or black market preparers.
Ghost preparers tend to set up shop around tax time, usually as a short-term rental in a busy area or a community gathering place, such as a church. They tout “big and fast” tax refunds to taxpayers, almost always in combination with a refund anticipation type loans. They advertise low fees to get taxpayers in the door, but the costs for other services, such as refund loans that are tied to the size of a refund, quickly add up. The result? Incentives to cheat, including reporting bogus Head of Household filing status, inflated Earned Income Tax Credits (EITCs), made-up education credits, and fabricated business expenses.
That’s what happened here. According to the plea agreement, Brown operated a ghost tax preparation business at his home and a church. As part of the business, he charged clients a tax prep fee of around $500 plus 10% of any fraudulent tax refund he and his other “ghost” preparers obtained for them. To inflate the refunds, Brown trained his employees to prepare false income tax returns with bogus medical and dental expenses. They also fabricated fuel tax credits.
The fuel tax credit (FTC) is claimed for various nontaxable uses of fuel, including farming and off-highway business use. It’s largely designed for off-highway business and farming use—that necessarily means that most taxpayers don’t qualify for the credit.
Off-highway business use is defined as any off-highway use of fuel in a trade or business or in an income-producing activity where the equipment or vehicle is not registered with the state government and is not required to be registered for use on public highways. Examples include stationary machines such as generators, compressors, power saws, and similar equipment; vehicles for cleaning purposes; and forklift trucks, bulldozers, and earthmovers.
In contrast, a highway vehicle is any “self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions.” A public highway includes any road in the United States that is not a private roadway, including federal, state, county, and city roads and streets. Highway vehicles, which include passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors, are not eligible for the fuel tax credit.
To be eligible for the credit, taxpayers must have a business purpose and engage in a qualifying business activity, such as operating a farm or purchasing aviation gasoline. But unscrupulous preparers convince taxpayers to claim the credit to receive a large refund. Sometimes, the credit is clearly fraudulent, with taxpayers claiming to have purchased and exported large quantities of fuel overseas. These customers may be described as “OTR” (over-the-road) truck drivers and “long-distance” truckers (remember, those taxpayers don’t qualify for the credit). In other instances, schemers suggest taxpayers can claim the credit in conjunction with routine business mileage. While a business mileage deduction is available for the use of a vehicle in your business, it is very different from the fuel tax credit—you don’t qualify for the credit simply by buying gas at the pump.
Since taxpayers could receive inflated tax refunds by participating in the scheme, Brown and another individual offered clients two bold filing options: “Standard” or “I’m Not Scared.” The “Standard” option generally resulted in a fraudulent tax refund of $2,000 to $9,000, while the “I’m Not Scared” option generally resulted in a fraudulent tax refund of $14,000 to $30,000.
As part of the “I’m Not Scared” option, Brown instructed ghost preparers to falsely claim FTCs and bogus income and expenses on Schedule C, as well as fake medical and dental expenses on Schedule A.
For the “Standard” option, ghost preparers would file returns reporting bogus income and expenses on Schedule C, as well as improper Sick and Family Leave Credits.
As part of pandemic relief, eligible employers were entitled to tax credits for wages paid to employees for certain leave taken due to COVID-19. Tax credits for paid sick leave and family leave were also available to self-employed taxpayers. These tax credits were designed to help taxpayers recover from missed workdays due to pandemic-related illnesses, quarantine, or absences for family care.
The credits for self-employed individuals were only available for 2020 and 2021 during the pandemic—they were not available for 2023 or subsequent year tax returns. The refundable credits were worth up to $5,110 for qualified sick leave wages and up to $12,000 for qualified family leave wages, but they could not exceed self-employment earnings.
Shady preparers suggest to tax preparers that almost anyone will qualify for the credits, even when the credits are clearly not proper.
As a result of his scheming, Brown and his conspirators claimed at least $1,003,631 in fraudulent income tax refunds. They also collected approximately $130,000 in fees.
With Brown’s guilty plea, he faces up to 20 years in prison, three years of supervised release, a fine, and restitution.
The scheme was investigated by the IRS—Criminal Investigation (IRS-CI)
Regardless of who prepares a tax return, the IRS advises taxpayers to review their returns carefully and ask questions before signing. Taxpayers should verify their routing and bank account numbers on the tax return for any direct deposit refund, as ghost preparers may attempt to include their own bank account information instead.
It’s just as important to choose a tax return preparer wisely. If a ghost tax preparer refuses to sign your return, find a competent tax professional who will prepare and sign your return. You can also check the IRS directory to find a list of tax preparers in your area who currently hold credentials recognized by the IRS or an Annual Filing Season Program Record of Completion.
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