Imagine receiving a tax refund much larger than expected. Your preparer says you qualify for a special pandemic credit. The money arrives. Months pass without a notice. It may feel like the IRS reviewed and approved everything. That is not necessarily what happened.
The Justice Department announced that eight North Carolina tax return preparers pleaded guilty in a pandemic-relief tax fraud scheme involving almost $25 million in fraudulent refund claims. The preparers submitted false returns claiming a COVID-era paid sick and family leave credit. The IRS issued approximately $13.89 million in fraudulent refunds before the scheme was detected.
How a “special tax credit” becomes a taxpayer’s problem
Most taxpayers hire preparers because they trust those professionals to understand the law. That trust can create an opening for dishonest or careless preparers. A taxpayer might be told things that sound reassuring but do not establish legal eligibility:
“You qualify—you were self-employed.”
Simply operating a business or reporting income on Schedule C did not automatically qualify someone for the paid sick and family leave credit.
“The IRS already approved it.”
A refund issued through automated processing is not an approval. The IRS can disallow the credit on audit long after the money was deposited.
“You don’t need much documentation.”
The paid sick and family leave credit required specific qualifying leave days, circumstances and self-employment income—all verifiable by records.
“I prepared it—you have nothing to worry about.”
A dishonest preparer may face criminal charges, but the tax liability can still appear under the taxpayer’s Social Security number.
Why did the IRS send the money in the first place?
Many taxpayers assume the IRS manually reviews each return before issuing a refund. It does not. Millions of returns are processed through automated systems. A refund can be issued before the IRS verifies every document, detects a pattern across returns filed by the same preparer, conducts an audit, or opens a criminal investigation.
In this case, the IRS paid approximately $13.89 million in fraudulent refunds—even though the broader scheme involved nearly $25 million in claims. The government’s ability to recover and prosecute the scheme years later is a reminder that money in a bank account does not make an unsupported tax position valid.
What was the credit supposed to cover?
The paid sick and family leave provisions were created to assist certain employers and self-employed individuals affected by specific COVID-related circumstances. Eligible taxpayers generally calculated their credit using Form 7202, based on qualifying leave days and self-employment income. These credits were tied to limited pandemic periods—available for qualifying 2020 and 2021 claims, not as a general credit on later returns.
Promoters frequently take a legitimate tax provision and market it far beyond its legal limits. The underlying credit may be real. The taxpayer’s claim may still be false.
The difference between a tax strategy and a tax scheme
A legitimate tax strategy begins with the taxpayer’s facts. The professional asks questions, reviews documentation, applies the law and explains both the benefit and the risk. A tax scheme begins with the promised result—and then attempts to manufacture numbers to produce it.
Five questions to ask before accepting a large refund
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What is the exact name of the credit? Do not accept descriptions like “business money” or “COVID money.” Ask for the formal credit name and the form on which it appears.
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Why do I personally qualify? The answer should relate to your actual income, business, expenses or family circumstances—not “the software gave it to you.”
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What documents support the claim? Your preparer should identify records to retain in case the IRS asks questions later.
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How was the amount calculated? Ask to see the calculation. A $20,000 refund should never appear as a surprise on the final screen before filing.
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What happens if the IRS disagrees? A competent professional will discuss risks and documentation standards—not just the benefit.
Warning signs, actions and resources
| Warning Sign | Why It Matters | What To Do |
|---|---|---|
| Preparer guarantees a refund before reviewing records | No professional can guarantee an outcome without knowing your facts. | Stop. Request a full review of your documentation first. |
| Fee is a percentage of the refund | Creates an incentive to inflate the refund, not file accurately. | Confirm the fee structure in writing before proceeding. |
| Preparer refuses to sign the return or include a PTIN | Paid preparers are required by law to sign and include their Preparer Tax Identification Number. | Do not authorize filing. Report to the IRS using Form 14157. |
| Return shows a business, dependents or withholding you don’t recognize | These are common indicators of fabricated entries designed to inflate the refund. | Do not sign. Compare every line against what you provided. |
| Preparer asks you to sign a blank or incomplete return | Signing a blank return gives the preparer authority to enter any figures. | Never sign a return you have not fully reviewed. |
| Refund is directed to an unfamiliar account | Ghost preparers sometimes divert refunds to their own accounts. | Confirm direct-deposit details before filing. |
What to do if the refund has already been received
Do not assume the issue will resolve itself because the IRS has not contacted you. Begin your review with the following steps.
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Obtain the complete return. Request every page, schedule, election and attachment—not only the two-page Form 1040 summary.
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Identify unfamiliar entries. Look for credits, businesses, dependents or withholding amounts you did not provide or expect.
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Preserve all communications. Save text messages, emails, invoices, advertisements and any files exchanged with the preparer.
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Pull IRS transcripts. Account and return transcripts show what was filed, what the IRS processed and whether notices or adjustments have occurred.
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Recalculate the correct return. Determine what the tax result would have been without the questionable claim.
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Get professional advice before amending. Timing and presentation matter—particularly when the original return included fabricated documents or knowingly false information.
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Report unauthorized filing if applicable. Form 14157 covers preparer complaints. Form 14157-A applies when a preparer filed or changed a return without the taxpayer’s authorization.
“My preparer did it” may not eliminate the tax bill
A dishonest preparer can face criminal charges, civil penalties, professional sanctions and imprisonment. However, that does not automatically remove the improper credit from the taxpayer’s account. Taxpayers sign returns under penalties of perjury and are expected to confirm accuracy.
Even a genuine victim of preparer misconduct may still need to correct the tax account, provide evidence to the IRS, repay any refund received and request available penalty relief. A taxpayer who knowingly agreed to false information is in a very different legal position from someone whose preparer acted without consent—but both may still owe the money.
This is not only a pandemic-credit problem
The same pattern can appear whenever a tax provision becomes popular—the employee retention credit, fuel tax credits, research credits, clean-energy incentives, invented withholding or abusive trust arrangements. The marketing language changes; the warning signs do not:
Concerned about a prior refund or credit claim?
McGregor Financial Services assists taxpayers with return reviews, amended-return evaluations, accounting reconstruction, tax compliance and IRS representation. Have the return independently reviewed before the issue becomes an examination or collection matter.
[Speak with an Advisor](/speak-with-an-advisor)Sources: U.S. Department of Justice, “Eight North Carolina Return Preparers Plead Guilty in Almost $25M Pandemic-Relief Fraud Scheme,” June 24, 2026. Internal Revenue Service, paid sick and family leave credit guidance for self-employed individuals; guidance on misleading sick and family leave credit claims; guidance on choosing and reporting tax return preparers; Forms 14157 and 14157-A.
Disclaimer: This article is for general informational purposes only and is not legal or tax advice. Tax results depend on individual facts, income, filing status, documentation and filing history. Obtain professional advice before amending a return or responding to an IRS inquiry.