The United States has filed a complaint in the U.S. District Court for the Eastern District of Texas seeking to bar a Beaumont, Texas, tax return preparer from owning or operating a tax return preparation business and preparing federal income tax returns for others.

The civil complaint filed against Michelle Denise Johnston alleges that, since at least 2011, she has operated a tax preparation business in Beaumont under the name “Allen and Johnston Tax Service.” According to the complaint, Johnston prepared and filed tax returns that understated her customers’ federal income tax liabilities by (1) wholly fabricating businesses and related business expenses; (2) improperly inflating such expenses for existing businesses; and (3) fabricating or improperly inflating itemized deductions for casualty losses and mortgage interest deductions.

The complaint further alleges that Johnston has engaged in a “refund-skimming” scheme that “double dips” her tax preparation fees. According to the complaint, customers directly paid Johnston preparation fees ranging from $200 to $500, based on preparation of a “tentative income tax return” that showed a modest refund. The complaint alleges that Johnston then took the tentative return and inflated and/or fabricated deductions, credits and losses to create a larger tax refund. According to the complaint, Johnston filed the fabricated return with the IRS, which deposited the inflated refund with a third-party vendor….

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