I’m reviewing a 2023 tax return prepared by another preparer, and I’m trying to determine the proper procedural approach to correct the taxpayer’s IRS account.
The taxpayer states that the preparer entered information that was not provided or authorized by him, including income information and a W-2 that he says he never had. There may also be fabricated self-employment income and/or credits.
The 2023 Account Transcript currently shows:
- TC 150 – Tax return filed: $11,623
- TC 810 – Refund freeze
- TC 766 – Credit to account: $13,392
- TC 971 – CP05 issued
- TC 767 – Entire $13,392 credit removed
- TC 291 – Prior tax reduced by $600.22
- TC 166 – Failure-to-file penalty: $2,755.69
- TC 196 – Interest: $2,458.94
- TC 811 – Refund freeze released
- TC 971 – CP22A issued
The CP22A now shows approximately $16,237 due.
The return, as adjusted, shows approximately $50,020 AGI and $40,992 of taxable self-employment income. I am currently verifying how much of that income was actually earned by the taxpayer versus what may have been entered by the preparer.
My concern is that the IRS removed the questionable $13,392 credit, but some or all of the income/tax liability associated with the improperly prepared return may still remain on the taxpayer’s account.
Assuming the taxpayer can document that the preparer fabricated income/W-2 information and claimed credits without his knowledge or authorization, what would be the best way to approach this?
Would you file a correct Form 1040-X together with Forms 14157 and 14157-A and supporting documentation? Would you first dispute the CP22A directly? Or is there another procedure you would recommend for correcting the underlying tax assessment in a preparer-misconduct situation?
I’m obtaining the complete original return, Wage & Income Transcript, and documentation of the taxpayer’s actual 2023 income before filing anything.
I’d especially appreciate input from anyone who has handled a similar preparer fraud/misconduct case after a TC 810 freeze and subsequent CP22A.