Federal prosecutors say that a tax preparer has entered a guilty plea to a tax fraud scheme in which she filed false deductions for student loans on behalf of thousands of clients. In total, the alleged scheme involved over 3,000 tax returns and underpaid over $3 million in taxes. She faces up to five years in prison, although there is no evidence that she pocketed any of the ill-gotten gains herself.

The tax preparer is not the only one who will have to answer for the false returns and underpaid taxes. Her clients who benefitted from the improper deductions will also face scrutiny from the IRS and will likely have to repay the taxes that they owed from those years.

This is the important part that is relevant to most taxpayers – even when a trusted tax preparer took a deduction that you might not have realized was improper, you still do not get to keep those ill-gotten gains. Not knowing about the fraud is a defense to being personally charged for a crime in relation to the false tax return, but generally speaking the IRS will require repayment from even the most innocent bystanders.

In this case, prosecutors say that the woman’s business was booming, perhaps as a result of referrals within the community for the large returns she was able to produce. If the taxpayers who took advantage of her services had an idea that she was filing false returns when they hired her, there may be some additional penalty for them.

Source: NBC Chicago, “Tax Preparer Convicted of IRS Fraud,” Phil Rogers, Jan. 9, 2013.