A former aspiring lawyer was sentenced Tuesday to 188 months in federal prison for his role in a tax fraud scheme involving the inflation of client tax returns. John Anthony Castro, 40, owner of the virtual tax preparation business Castro & Company, was convicted on all 33 counts of assisting in the preparation of fraudulent tax returns after a five-day bench trial presided over by Senior U.S. District Judge Terry R. Means.
Castro, indicted in January, was also ordered to pay $277,243 in restitution to the U.S. government. U.S. Attorney for the Northern District of Texas, Leigha Simonton, described Castro as an "international fraudster" rather than the expert he claimed to be, emphasizing the impact of his actions on the tax system and the trust of his clients.
Scheme Overview
Evidence presented during the trial indicated that between 2017 and 2019, Castro prepared and filed over 1,900 tax returns for individuals from various countries, falsely marketing himself as an "international tax expert" specializing in tax issues affecting Australian expatriates, among others. He promised clients significantly higher tax refunds than they could obtain from legitimate preparers by claiming he could identify deductions others could not.
Castro's business model included charging clients a fee that was contingent on obtaining higher refunds, with claims that he would share the additional amount with them. However, he rarely shared the actual tax returns with clients before filing, often only informing them of the anticipated refund amount.
Fraudulent Practices
Many of the returns he filed contained fabricated deductions with no basis in fact. For example, in the case of one client who earned approximately $103,000, Castro claimed over $90,000 in unreimbursed employee expenses. In another instance, he deducted over $26,000 in expenses for a cupcake business that reported only $250 in revenue. His strategies included claiming deductions based on extreme and unsupported legal theories, such as expenses related to commuting and dry-cleaning for work clothes, asserting they qualified as “impairment-related work expenses.”
In February 2018, an undercover IRS agent contacted Castro, seeking assistance with tax preparation. The agent provided a W-2 and a Form 1098-T, showing wages of $142,217, but Castro's office informed the agent that in-person meetings required a $5,000 retainer. Instead, they communicated via email.
On March 12, 2018, Castro sent a tax analysis to the undercover agent, falsely projecting that he would receive a refund of $6,007 through his services, which included $29,339 in fraudulent deductions. Two days later, he filed the agent's return with those claimed deductions, none of which had been discussed beforehand.
Client Reaction and Consequences
When many of Castro's clients discovered the fraudulent activities, they demanded copies of their returns. Castro often refused to provide them or delayed the release for months. Victims who questioned him faced intimidation tactics; Castro responded with hostile emails, legal threats, or retaliatory amendments to their returns that eliminated all deductions, leaving them liable for significant tax payments to the IRS.
During cross-examination at trial, Castro admitted that many of his positions on deductions were extreme and not supported by the law. He acknowledged having engaged in various acts of deception and intimidation against clients who challenged him.
The financial fallout from Castro's fraudulent activities has left many of his victims struggling, as they faced audits and the need to file amended returns due to the false claims made on their behalf.
Investigation and Prosecution
The investigation was conducted by the IRS Criminal Investigation unit, focusing on identifying dishonest tax preparers exploiting the system. The case was prosecuted by Assistant U.S. Attorneys P.J. Meitl and Nancy Larson, who emphasized the importance of holding accountable those who commit tax fraud and undermine public trust in the tax system. Following the sentencing, officials reiterated their commitment to pursuing fraudulent tax preparers and protecting the integrity of the tax system.
