Imagine handing your business's tax return to a licensed-sounding "international tax attorney," watching a refund land that's bigger than any preparer has ever gotten you before — and then, a year or two later, opening an IRS audit letter because that refund was built on numbers your preparer invented. That is exactly what happened to more than 200 clients of a Texas tax preparation firm, and in mid-2026 the Fifth Circuit Court of Appeals made sure the man behind it will spend the next 15-and-a-half years finding out what a "loss enhancement" means from the inside of a federal prison.
The case, United States v. Castro, is a reminder that the person doing your bookkeeping and tax prep isn't just a service provider — they're someone you're trusting with your legal exposure. Here's what happened, what the court decided, and how to make sure you never end up as one of the 200-plus clients an appeals court has to explain to.
The Scheme: A Fake Attorney, Real Refunds, and a $15.2 Million Tax Loss
John Anthony Castro founded Castro and Company LLC in 2014 and marketed himself as an "international tax attorney." He had a law degree and an LLM in taxation, and he was registered with the IRS as an enrolled agent — credentials real enough to sound convincing. What he did not have was a license to practice law from any state bar. Ever.
Between 2016 and 2024, Castro built a tax prep business around one core promise: refunds bigger than any other preparer would get you. Clients filled out a questionnaire, uploaded a handful of documents, and Castro's firm took it from there — often without the client ever reviewing the actual return before it was filed. His fee wasn't a flat rate; it was roughly half of whatever refund he generated.
The mechanics behind those oversized refunds were straightforward fabrication:
- Schedule C business expenses invented or inflated to manufacture net losses that didn't exist, offsetting income that should have been taxable.
- Schedule A itemized deductions padded well beyond what clients had actually spent or could substantiate.
Prosecutors put the total tax loss from the scheme at an estimated $15.2 million. A jury (following a bench trial) convicted Castro on 33 counts of preparing false returns.
Why the Sentence Enhancements Stuck
Castro appealed both his conviction and his sentence, and the Fifth Circuit rejected every challenge. Two sentencing enhancements are worth understanding, because they show how courts think about preparer fraud differently from a single bad return.
The "otherwise extensive" enhancement. Federal sentencing guidelines increase a defendant's offense level when a fraud scheme is large enough or involves enough participants to count as "otherwise extensive" — even when most of those participants had no idea they were part of a crime. The court held that Castro's own clients counted toward that extensiveness, because their unknowing participation (signing off on returns they didn't actually review) was what made the scheme function at scale. In other words, being deceived didn't just make clients victims — procedurally, it also made the scheme itself larger in the eyes of the guidelines.
The obstruction-of-justice enhancement. Once Castro learned the IRS was investigating him, he didn't cooperate — he filed what the presentence report characterized as frivolous lawsuits against people involved in the case, and sent investigators emails threatening litigation. Courts read that kind of behavior as an attempt to intimidate witnesses and interfere with the investigation, and it added another two levels to his offense score.
Add those enhancements to the underlying fraud counts, and you get the number that made headlines: a 188-month sentence — just over 15 and a half years — which the Fifth Circuit affirmed in full over 200-plus resulting client audits and years of build-out.
The Part That Should Worry Every Business Owner: You're on the Hook, Not Your Preparer
Here's the detail that gets buried under the drama of a 33-count conviction: the client, not the preparer, is legally responsible for what's on their own tax return. That's true even when the preparer fabricated the numbers without telling you.
If a preparer inflates your deductions and the IRS catches it — whether that preparer is committing outright fraud like Castro or just cutting corners — you are the one who owes the additional tax. A preparer can be held liable for certain penalties and interest tied to their own misconduct, and in a fraud case like this one, restitution may flow back to victims. But the underlying tax bill, and the audit that comes with it, lands on you. Over 200 of Castro's former clients are learning that firsthand.
That asymmetry is exactly why due diligence on a preparer isn't optional busywork — it's a direct financial exposure decision, on par with choosing who has signing authority on your business bank account.
How to Vet a Tax Preparer Before You Hand Over a Return
A few checks take fifteen minutes and would have caught most of what made Castro's operation possible:
-
Verify licensing directly, not by reputation. "International tax attorney" is a title, not a credential. If someone claims to be an attorney, confirm bar membership through your state bar association's public lookup — don't take a website's word for it. If they claim CPA or enrolled agent status, verify that too through the relevant state board or the IRS's own directory.
-
Check the IRS Directory of Federal Tax Return Preparers. The IRS maintains a searchable directory of preparers who hold credentials or participate in its Annual Filing Season Program. It's not exhaustive — plenty of legitimate preparers aren't listed — but a name that should be there and isn't is worth a second look.
-
Confirm they have a PTIN and that they sign the return. Anyone paid to prepare federal returns is legally required to hold a Preparer Tax Identification Number (PTIN) and to sign what they file, listing that PTIN. A preparer who won't do either — a so-called "ghost preparer" — is a hard stop, not a yellow flag.
-
Never sign a return you haven't actually read. Castro's clients were able to be defrauded at scale in part because returns went out the door without client review. Read every line, especially Schedule C and Schedule A. If a deduction on the return doesn't match an expense you remember incurring, ask before you sign.
-
Be skeptical of refund-based fees and refund promises. A preparer whose fee is a cut of your refund has a financial incentive to inflate that refund. Combine that with promises of unusually large refunds compared to competitors, and you have the exact pattern the IRS warns about in its "ghost preparer" guidance — pop-up offices, refund-percentage fees, pressure to sign incomplete or blank returns.
-
Ask for your copy and keep it. A legitimate preparer gives you a complete copy of what was filed. If you're asked to sign something you can't keep a copy of, that's not a preparer relationship worth having.
If you do end up on the wrong side of a bad preparer, the IRS has a formal path: Form 14157 reports preparer misconduct, and Form 14157-A is the affidavit to use if a preparer altered your return without consent and you need your account corrected. Filing either doesn't fix your tax bill on its own — you'll still need to file an accurate amended return and respond to any notices — but it starts the process of holding the preparer accountable and separates your record from the fraud.
Bookkeeping That Doesn't Depend on Trusting a Black Box
The uncomfortable truth in the Castro case is that most of his clients had no way to independently check whether the numbers on their return were real, because they didn't have an independent record of their own finances to compare against. The return was the only version of the truth they had — and it was fabricated.
That's the argument for keeping your own books, in a format you actually control, year-round rather than reconstructing a year of transactions from memory every April. Beancount.io provides plain-text accounting that gives you a transparent, version-controlled ledger of your own finances — so when a preparer hands you a Schedule C, you have your own numbers to check it against, not just their word for it. Get started for free and see why developers and finance-minded business owners are switching to plain-text accounting.