Blog · 14 October 2026

Ghost Preparers and Preparer Responsibility: Lessons for CPA Firms from Recent IRS-CI Cases

By Keshav Bansal, CA

Preparer fraud cases are a regular feature of IRS Criminal Investigation press releases. They're worth reading for more than the headlines. For legitimate firms, they show how bad actors operate, what clients can be exposed to, and why careful practices such as signing what you prepare, documenting diligence and reviewing what others draft protect both clients and the firm.

Recent cases

Three cases from the past few weeks illustrate the patterns. All details below are as reported in the cited releases. Each case should be read in its official source.

• Damaris Beltre (Freeport, NY). According to an IRS-CI/EDNY release, the former preparer was sentenced on October 8, 2026 to 48 months and $11,629,000 in restitution. The case involved false returns for 2021–2024 with fake dependents, COVID-era credits and fuel-tax credits, and about $11M in improper refunds.
• Darlene Musgrove (Tucson). Reported convicted on October 5 on 22 counts involving false deductions. Sentencing was scheduled for February 23, 2027.
• Levi Casildo Castro (Houston). According to an IRS-CI release (September 28, 2026), he pleaded guilty to willful failure to collect and pay over employment tax, and to aiding false returns as an unauthorized preparer who listed clients as self-prepared. The release describes inflated wages, withholding and Social Security/Medicare tax used to boost EITC, and a loss of about $400K. Sentencing was set for December 16.

The "ghost preparer" pattern

The Castro case shows the classic ghost preparer setup: a paid preparer who doesn't sign the return and instead presents it as self-prepared. That hides the preparer from IRS scrutiny and leaves the client fully exposed. Red flags the IRS and our sources point to include:

• No PTIN and no preparer signature on a return someone was paid to prepare.
• Fees based on a percentage of the refund.
• Refunds sent to the preparer's account instead of the taxpayer's.
• Refundable credits claimed without the facts to support them.

The client stays responsible

A point worth making to every new client: taxpayers sign their returns under penalty of perjury and remain responsible for them even when a preparer lies. The IRS recovers tax and interest from the taxpayer, and accuracy-related penalties may apply. Clients who discover a problem can fix it with Form 1040-X. Preparer misconduct can be reported using Form 14157, and Form 14157-A where it applies.

This is often how legitimate firms meet these situations: a new client arrives after a bad experience elsewhere. A calm, documented process for reviewing prior-year returns, explaining options and correcting errors is a real service.

What these cases mean for legitimate firms

Sign what you prepare

Paid preparers must sign and include their PTIN. That applies whether the draft was keyed by staff, an AI tool or an outsourced team. Our notes record that PTIN renewal for 2027 opens mid-October (per IRS PTIN FAQs). A PTIN is a registration, not a credential.

Document due diligence

The IRS posted its 2026 preparer due diligence guide (Publication 4687), which notes a $650 penalty per failure. Due diligence requirements apply to preparers claiming the EITC, CTC/ACTC, AOTC or head of household status. Preparers must ask questions and keep records. Circular 230 §10.34(d) allows good-faith reliance on client information but requires reasonable inquiries when something looks wrong.

Expect matching

The Castro release ties into the PATH Act refund hold. Under it, the IRS cannot release refunds on returns claiming EITC or ACTC before mid-February, so that it can match claimed wages and withholding against employer filings first. Fabricated wages and withholding are designed to beat that matching. Careful preparers should expect it and make sure source documents support the figures.

Keep review standards when you add capacity

Whether you add seasonal staff, outsourced preparers or software, your review and sign-off standards should not change. Responsibility stays with the signing preparer.

A short checklist

1. Every paid return is signed with a valid PTIN.
2. Due diligence questions and records are kept for credit and filing-status claims.
3. New-client intake includes a review of prior-year returns for red flags.
4. There's a clear process for Form 1040-X corrections and Form 14157 reporting.
5. Review standards are documented and applied equally to work from any source.

Talking to clients about choosing a preparer

Firms can turn these cases into useful client education without sounding self-serving. A short note in an engagement letter or onboarding pack can explain what a legitimate preparer does: signs the return and includes a PTIN, doesn't charge fees based on the size of the refund, and sends refunds to the taxpayer's own account. It can also remind clients that they should review a return before signing it and keep copies of everything filed. Clients who understand these basics are better protected, and better partners in getting their own returns right.

To see how we support US CPA firms with preparation support while your team keeps review and sign-off, see our services.

Check current IRS guidance: this article summarizes sources as of 14 October 2026 and is general information, not tax advice. Rules, dates and figures can change. Confirm them against the cited IRS release or publication and current IRS.gov guidance before acting.