The Tax Preparer Who Cooked His Own Books

Eric Pinckney prepared tax returns for a living. On his own 2008 return he reported $0 in taxable income. The Tax Court found his business took in $376,712 that year, and he reported $200,500 of it. The notice of deficiency proposed $147,219 in back taxes and $110,414.25 in fraud penalties. The court held the whole underpayment was due to fraud, and left the final dollar amounts to a Rule 155 computation, in which the court decides the figures and the IRS then computes the bill. This is Pinckney v. Commissioner, T.C. Memo. 2026-113.

The one idea to carry out of this story: the IRS often does not need your books to find your income. It has your bank. When the deposits do not match the return, the return loses, and a tax preparer who invents deductions for himself gets the same 75% fraud penalty as anyone else. If your preparer is the one cutting corners, this is your case.

The setup in one paragraph

Eric Maurice Pinckney ran Daitech Tax Services, a South Carolina tax-preparation business he organized as an LLC in 2002. For 2008 and 2009, the court found he hid $373,897 of the business's income across the two years, claimed cost of goods sold for a business that sold no goods, and padded his mortgage-interest and charity deductions. A criminal case ran first: he pleaded guilty to conspiracy to submit false returns, was sentenced to six months in prison, and was ordered to pay $334,738.02 in restitution. Then the civil case came back, and the Tax Court sustained the 75% civil fraud penalty for both years. The final dollar amounts are left to a Rule 155 computation.

These are the IRS's notice figures, not the court's final numbers.

Who was Eric Pinckney?

Pinckney held a master's degree in computer information systems from Webster University. On November 22, 2002, he organized Daitech Tax Services as a limited liability company in South Carolina, and he was always its sole member. Daitech was in the business of preparing and filing tax returns. He also ran a consulting business, Pinckney Business Consulting. He filed his 2008 return on May 12, 2009, and his 2009 return on April 6, 2010, both within their extended due dates. The usual three-year assessment periods expired during the criminal proceedings that followed, which is why the fraud finding mattered so much. Under section 6501(c)(1), assessment of a false or fraudulent return can occur at any time.

The refund machine

By 2008, Daitech had a system. It prepared customer returns to produce modest refunds by manipulating the earned income credit, a refundable credit that rises with earned income up to a point, then falls. If a customer's actual earned income was too low, Pinckney would inflate the customer's business income on the customer's Schedule C to push the reported income up to the amount that produced the peak refund. If the customer's actual earned income was too high, he would underreport gross income, or fabricate business-expense deductions, to push the reported income down to the peak. One of his methods was to falsely claim cost of goods sold on a customer's Schedule C. Daitech collected its fees when the customers received their refunds. The indictment listed the customer returns that followed this pattern, including one with a falsely claimed $19,396 deduction for footman cleaning.

His own returns

Pinckney used the same playbook on himself. On his 2008 return he reported that his taxable income was $0, and that he owed $5,903 in total tax, even though his actual taxable income was at least $180,362.77 and his actual tax was at least $53,601.38. On his 2009 return he reported taxable income of $22,998 and tax of $10,406, though his actual taxable income was at least $340,765.25 and his actual tax was at least $117,957.89. Daitech's 2008 Schedule C reported gross receipts of $200,500, cost of goods sold of $23,231, expenses of $141,883, and net profit of $35,386. The court found the real gross receipts were $376,712, the cost of goods sold was zero, and the real expenses were $132,444. The extras did not stop there: he claimed $69,981 of home-mortgage interest for 2008, and the court allowed $39,667. He claimed $5,350 of charitable contributions for 2008, and the court allowed $4,840. For 2009 he claimed a $5,000 deduction for self-employed health insurance, which the court disallowed in full. And Daitech was a disregarded entity, meaning it was taxed as part of his own return rather than separately, not an S corporation, so the income counted as his own self-employment income.

The bank deposits gave him away

The IRS did not need Pinckney's books. In October 2021, during the litigation, it acquired the bank records for the Daitech Account at First Community Bank. Revenue Agent Baumgartner ran a bank-deposits analysis, sorting every deposit into taxable and nontaxable. For 2008 she found taxable deposits of $380,200, about $2,043 below the $382,243 the notice had determined. The court found gross receipts of $376,712. For 2009 the deposits told the same story in a different shape: $401,884 came in as deposits labeled Republic TRS Prep, plus $9,223 in checks marked tax prep and $5,075 in cash deposits, for $416,182 includable in total. The court sustained the notice's lower figure of $340,765. When the IRS proves its case with a bank-deposits analysis, the taxpayer has to prove a deposit came from a nontaxable source. Pinckney could not. The notice's $382,243 for 2008 had not come from a bank analysis at all: it was $201,880 from information Pinckney himself provided plus $180,362.77 from the indictment.

The criminal case came first

The civil examination was suspended on April 11, 2012, when IRS Criminal Investigation told the examiner to suspend it. In a May 7, 2012 email, the investigator wrote that the case was still in covert investigative status and to cease all contact with Pinckney until the investigation concluded. The indictment came on August 20, 2014, and a superseding indictment on July 22, 2015, with 12 counts: conspiracy to submit false customer returns, false Forms 1040 for himself for 2008, 2009, and 2010, and false customer returns. The indictment also covered a 2010 return; the Tax Court case decided 2008 and 2009 only. On July 31, 2015, Pinckney pleaded guilty to the conspiracy count and agreed to full restitution. On March 1, 2016, he testified for the government at the trial of his co-conspirator Brandon Samuels, and admitted he lied to the IRS throughout his 2008 return, that he evaded taxes of at least $53,601, that he wanted to avoid paying the government that amount, and that he knew reporting $0 in taxable income was absolutely a lie. He agreed his 2009 return was a lie too, that he did not want to pay the government $117,957.89, and that his true income for 2009 was $340,765.25. On December 1, 2016, the district court sentenced him to six months in prison and ordered restitution of $334,738.02, to be paid to the IRS in equal monthly installments of $100, starting 60 days after his release. The civil examination resumed in February 2017, and the notice of deficiency followed on February 6, 2019. The trial ran five days in Columbia, South Carolina, in January 2022.

The court's answer

The court sustained nearly every adjustment. Daitech's gross receipts were $376,712 for 2008 and $340,765 for 2009. Cost of goods sold was zero for both years. The mortgage-interest, charity, and health-insurance disallowances stood. Daitech was a disregarded entity, not an S corporation. Then came the penalty. Section 6663 adds 75% of the portion of any underpayment due to fraud, and the IRS has to prove fraud by clear and convincing evidence. The court found it had, for both years: Daitech sold no goods, so the cost-of-goods-sold claims were fraudulent on their face; Pinckney's own later Form 1120-S for Daitech reported no cost of goods sold; falsely claiming cost of goods sold on customer returns was one of his techniques for defrauding the IRS; he had pleaded guilty to conspiracy to submit false returns; and he had admitted under oath that he lied throughout his 2008 return to evade tax. Because Pinckney could not prove any part of the underpayment was not due to fraud, the entire 2008 underpayment is treated as due to fraud, and the entire 2009 underpayment is too, except for the $3,764 by which the court's $66,963 expense figure exceeds the notice's $63,199. The court also held the limitations periods had not expired, because, under section 6501(c)(1), assessment of a false or fraudulent return is not time barred, and it rejected his Fourth Amendment and trial-error arguments. The decision will be entered under Rule 155, which means the court decides the figures and the IRS then computes the dollar bill, so the notice's $71,581 and $75,638 deficiencies and $53,685.75 and $56,728.50 penalties will be recomputed under Rule 155 to reflect the court's redetermination of the 2008 gross receipts and the 2009 expenses; the opinion states no final dollar amounts.

The checklist: what Pinckney teaches

• Your bank is your return's worst witness. The IRS reconstructed two years of income from deposits alone. If the deposits do not match the return, the return loses, and the taxpayer has to prove a deposit was nontaxable.
• A tax preparer is not exempt from his own rules. The man who tuned other people's returns to the peak refund got the same treatment as any taxpayer. He had pleaded guilty to conspiracy to submit false returns, and the court weighed that admission in the fraud finding.
• Cost of goods sold needs goods. A service business that sells no goods has no cost of goods sold. Claiming it anyway is not an aggressive position. It is a made-up number, and the court treated it as fraud.
• The earned income credit has a peak, and the IRS knows it. Returns engineered to land exactly on the maximum refund are a pattern, and a pattern is evidence.
• Fraud keeps the assessment window open. The usual three years had expired long before the notice arrived. But the court held the assessment periods for 2008 and 2009 were still open, because the returns were false and fraudulent with intent to evade tax, and under section 6501(c)(1) assessment of such a return can occur at any time.
• Admissions under oath do not stay in the criminal case. Pinckney's testimony at his co-conspirator's trial, that he lied throughout his returns, was the centerpiece of the civil fraud finding years later.
• The 75% penalty applies to the whole underpayment. Once fraud is proved, the taxpayer has to show some part of the underpayment was not due to fraud. Pinckney could not, so the penalty covered everything except a $3,764 expense difference in 2009.
• Filing new forms years later does not rewrite history. In 2012 Pinckney filed Forms 1120-S claiming Daitech had been an S corporation since 2002, plus amended returns removing the Schedule Cs. The court held Daitech was a disregarded entity for 2008 and 2009, and the 1120-S handed the court an admission: it reported no cost of goods sold at all.
• The criminal case is not the end of it. Six months in prison and $334,738.02 in restitution did not settle the civil bill. The Tax Court case came after, with its own deficiencies and penalties.

Alex Volkov, CPA is a New York-licensed CPA with over two decades in accounting, focused on resolving IRS tax problems, back taxes, liens, levies, garnishments, and audits, for individuals and businesses in all 50 states and around the world.