United States v. Earnest: Fifth Circuit Clarifies that Prior IRS Audits Are Admissible Under Rule 404(b), Rule 1006 Summaries Need No Expert, and Missing Form 1098‑T Can Support Tax-Loss Estimates and Relevant Conduct Across Employers

Introduction

In United States v. Earnest, a published decision of the U.S. Court of Appeals for the Fifth Circuit (March 31, 2025), a panel composed of Chief Judge Elrod and Judges Jones and Stewart (opinion by Judge Stewart) affirmed the convictions and sentences of three tax preparers—Adam Earnest, Christopher Randell, and James Klish—who participated in a multi-year scheme to claim fraudulent American Opportunity Tax Credits (AOTCs) and other items on clients’ returns. The case arises out of conduct at Sunbelt Tax Services, owned and run by Earnest, and is tied to earlier, similar misconduct at American Tax Service where Earnest and Randell previously worked.

The appeal presented a broad array of issues: the admissibility of prior acts evidence from IRS audits at a different firm under Federal Rule of Evidence 404(b) and Rule 403; the admissibility of a voluminous summary chart under Rule 1006 without expert testimony; alleged constructive amendment of the indictment; sufficiency of the evidence for aiding and assisting the preparation of a false return; the method and scope of estimating “tax loss” under the Sentencing Guidelines—including use of missing Form 1098‑T data and whether conduct from a different employer counts as “relevant conduct”; and entitlement to a mitigating role reduction at sentencing.

The Fifth Circuit affirmed across the board, issuing holdings that will resonate in tax-preparer fraud prosecutions: (1) prior IRS audits and civil penalties from a different firm may be admitted under Rule 404(b) to prove knowledge, intent, and absence of mistake, notwithstanding the different tax credit involved, where the conduct is highly similar; (2) a Rule 1006 summary of thousands of returns need not be presented by an expert when it performs only basic compilation and addition; (3) extensive limiting instructions can defeat constructive-amendment claims arising from the admission of other-acts evidence; (4) the government may prove aiding-and-assisting by circumstantial evidence, including use of other employees’ PTINs; (5) district courts may reasonably estimate tax loss using the absence of Form 1098‑T across thousands of returns—even for pre‑2017 years when due diligence rules were different—so long as the estimate is conservative and grounded in the record; and (6) prior conduct at a different tax preparation business can be counted as “relevant conduct” for sentencing when it shares temporal proximity, similarity, and regularity with the charged scheme.

Summary of the Opinion

The panel affirmed the convictions for conspiracy to defraud the United States against all three defendants and for aiding and assisting in the preparation of false returns against Earnest and Randell. It upheld the district court’s evidentiary rulings admitting:

Evidence of 2012 and 2014 IRS audits at American Tax Service, at which Earnest and Randell incurred substantial penalties for missing documentation for credits (EIC then; AOTC later), as proof of knowledge, intent, and absence of mistake under Rule 404(b) and over Rule 403 objections.
Exhibit 605, a Rule 1006 summary chart of 4,095 Sunbelt returns claiming education credits without corresponding Forms 1098‑T, without expert testimony, because it performed only basic addition and compilation.

The court rejected a constructive amendment claim and found sufficient evidence supporting Earnest’s aiding-and-assisting conviction based on testimony and the pattern of using other employees’ PTINs. On sentencing, the court approved the district court’s conservative tax-loss estimate falling between $3.5 million and $9.5 million under U.S.S.G. § 2T4.1, and held that pre‑2017 returns and returns prepared at a prior employer (American) could be included as relevant conduct, given the continuity and similarity of the scheme. Finally, it affirmed the denial of a mitigating role reduction for Klish because he failed to show he was substantially less culpable than the average participant.

Analysis

Precedents Cited and Their Influence

Evidence and standard of review: United States v. Smith, 804 F.3d 724 (5th Cir. 2015) set the abuse-of-discretion framework for evidentiary rulings. The panel applied it to uphold the admission of prior-audit evidence and the summary chart.
Rule 404(b)/Rule 403: Federal Rules of Evidence 404(b) and 403 framed the admission of prior audits and penalties. Fortenberry, 860 F.2d 628 (5th Cir. 1988), was distinguished because there the government introduced numerous unproven and dissimilar bad acts, whereas here the prior audits closely mirrored the charged conduct (claiming credits without required documentation), making them probative of intent, knowledge, and absence of mistake.
Limiting instructions and prejudice management: Samia v. United States, 599 U.S. 635 (2023), supports reliance on juries to follow limiting instructions. That principle underpinned rejection of Klish’s “guilt by association” argument and Earnest’s constructive amendment claim.
Summary charts and expert testimony: United States v. Jennings, 724 F.2d 436 (5th Cir. 1984), confirmed that no expert is needed for charts performing simple calculations. The panel used Jennings to uphold Rule 1006 admission of Exhibit 605 without Daubert/Rule 702 overlay because it totaled returns with missing 1098‑Ts.
Cumulative error: United States v. Labarbera, 581 F.2d 107 (5th Cir. 1978) and United States v. Delgado, 672 F.3d 320 (5th Cir. 2012) (en banc), emphasize that cumulative error requires actual errors to aggregate; “non-errors have no weight.” The panel found no errors to cumulate.
Constructive amendment vs variance: United States v. Bennett, 874 F.3d 236 (5th Cir. 2017) and United States v. Isgar, 739 F.3d 829 (5th Cir. 2014) frame de novo vs plain-error review and distinguish amendments from variances. United States v. McMillan, 600 F.3d 434 (5th Cir. 2010) confirms that proper instructions foreclose constructive amendment. The panel found no amendment and, at most, a non-prejudicial variance in wording (“deductions” vs “credits”) where the indictment expressly listed “Education Credits.”
Sufficiency of the evidence: United States v. Bolton, 908 F.3d 75 (5th Cir. 2018) and United States v. Sertich, 879 F.3d 558 (5th Cir. 2018) impose a highly deferential standard. The court held a rational juror could infer Earnest prepared a false return under a subordinate’s PTIN based on testimony and his documented practice.
Sentencing—tax loss and method: United States v. Johnson, 841 F.3d 299 (5th Cir. 2016) (clear-error review of amount) and United States v. Harris, 597 F.3d 242 (5th Cir. 2010) and United States v. Ritchey, 117 F.4th 762 (5th Cir. 2024) (method de novo) anchor the review standards. U.S.S.G. § 2T1.1 and commentary allow a “reasonable estimate” where exact loss is uncertain. United States v. Powell, 124 F.3d 655 (5th Cir. 1997) and § 1B1.3(a)(2) guide the “relevant conduct” analysis via temporal proximity, similarity, and regularity. The panel also compared United States v. Patel, 789 F. App’x 981 (5th Cir. 2019) (unpublished)—affirming tax-loss estimates using missing 1098‑T data—to underscore consistency; while not binding, its logic was persuasive here.
Mitigating role: United States v. Castro, 843 F.3d 608 (5th Cir. 2016) and U.S.S.G. § 3B1.2 set the burden and two-step inquiry; United States v. Thomas, 932 F.2d 1085 (5th Cir. 1991) cautions that doing “less than others” is insufficient; the defendant must be “peripheral.” These authorities supported denial of Klish’s role reduction.

Legal Reasoning

1) Rule 404(b)/403: The court upheld admission of extensive prior-acts evidence—IRS audits and civil penalties at American—because it closely tracked the charged scheme at Sunbelt. Although American involved Earned Income Tax Credit (EIC) and Sunbelt involved AOTC, both involved claiming tax credits without required supporting documentation; thus the evidence bore directly on intent, knowledge, and absence of mistake rather than mere propensity. The panel found no Rule 403 unfair prejudice that substantially outweighed probative value, emphasizing the district court’s repeated, tailored limiting instructions and the overlap of clients and personnel between the two firms.

2) Rule 1006 and no expert requirement: Exhibit 605 summarized thousands of Sunbelt returns showing AOTC claims without corresponding Forms 1098‑T. The panel treated this as classic Rule 1006 usage to present voluminous records “that cannot be conveniently examined in court.” Because the chart did only basic counting and addition, no specialized expertise was needed. Accordingly, neither Rule 702 nor Daubert applied. The court also rejected the premise that only returns of testifying clients should be admitted; Rule 1006 exists precisely to avoid the impracticality of calling thousands of taxpayers.

3) Constructive amendment: The court rejected two theories. First, it held that introducing American-related misconduct as 404(b) evidence did not transform the trial into one about an uncharged conspiracy; emphatic instructions told jurors that no crimes were charged regarding American and that each defendant must be considered individually. Second, the “deductions” vs “credits” wording discrepancy did not effect an amendment where the indictment’s table explicitly identified “Education Credit[s]” as the falsely claimed items; at most, any variance was non-prejudicial.

4) Sufficiency of the evidence (aiding and assisting): The panel held that a rational juror could infer that Earnest prepared the 2016 return for a client (Wanda Stamps) under a subordinate’s PTIN, consistent with his established practice, even though the client could not precisely remember which preparer handled which year and had never met the person whose PTIN appeared on the 2016 return.

5) Sentencing—tax loss estimation and relevant conduct:

Reasonable estimate and missing 1098‑T: The Guidelines permit a reasonable estimate when precise calculation is impractical. Here, Sunbelt returns claimed nearly $4.9 million in AOTCs without 1098‑Ts. The district court, recognizing possible uncertainty especially for pre‑2017 years (when preparers were not required to obtain 1098‑Ts from clients), conservatively selected the $3.5–$9.5 million range rather than the government’s just-over-$9.5 million figure. The Fifth Circuit held the estimate reasonable and not clearly erroneous, noting that defendants offered no evidence that pre‑2017 credits were legitimate and that the court excluded Schedule A and C losses, further underscoring conservatism.
Relevant conduct across employers: The court affirmed including returns from American in the loss calculation as relevant conduct. Applying § 1B1.3(a)(2) and Powell’s temporal proximity, similarity, and regularity factors, the court found continuity of methods, personnel, and even clients: “the exact same scheme from [American] to Sunbelt.” Even ignoring American entirely, the Sunbelt-only losses sufficed to exceed $3.5 million, so any arguable error would have been harmless.

6) Mitigating role: Klish failed to show he was substantially less culpable than the average participant. He prepared 547 returns with unsupported credits, understood the scheme’s scope, made decisions on each fraudulent return, and was paid on the same commission basis as others. Doing “less than some” is not the same as being peripheral.

Impact

This opinion has immediate implications for tax-preparer fraud prosecutions and sentencing in the Fifth Circuit:

Rule 404(b) in tax cases: Prosecutors may introduce prior IRS audits and civil penalties—even from different employers and involving different credits—when the conduct is materially similar (e.g., claiming credits without required documentation). Clear limiting instructions will be pivotal to avoid undue prejudice and constructive-amendment concerns.
Rule 1006 summaries without experts: Large-scale return compilations, when they merely count and total, need no expert testimony. This lowers the litigation friction for “big data” cases involving thousands of returns and helps courts avoid marathon trials calling client-by-client witnesses.
Tax-loss estimation using missing Form 1098‑T data: The court endorses using systemic absence of Forms 1098‑T as a reasonable proxy for fraudulent AOTC claims, even for pre‑2017 returns, if the estimate is conservative and grounded in corroborating evidence. Defense teams will need to marshal contrary proof of legitimacy if they hope to undercut such estimates.
Relevant conduct across employers: Sentencing courts may aggregate losses from earlier, related schemes at different businesses into one relevant-conduct calculation when the schemes share temporal proximity, similarity, and regularity—particularly with overlapping clients and staff.
Defense strategy recalibration: - On evidentiary motions, arguments focusing on the formal differences between credits (EIC vs AOTC) will carry less weight than demonstrating real dissimilarities in documentation practices or client populations. - On tax-loss, defendants must present affirmative evidence that credits were legitimate, especially for pre‑2017 years; mere invocation of historical due diligence rules is unlikely to carry the day. - On mitigating role, defendants must establish the culpability of the “average participant” and show true peripherality; raw volume comparisons are not enough.

Complex Concepts Simplified

Rule 404(b): Allows admission of a defendant’s other acts not to show “bad character,” but to prove specific points like knowledge, intent, plan, or absence of mistake. In tax cases, prior audits and penalties can show a preparer knew the documentation rules and the consequences of ignoring them.
Rule 403: Even if evidence is relevant, a court can exclude it if its unfair prejudice substantially outweighs its probative value. Tailored limiting instructions reduce the risk of unfair prejudice.
Rule 1006: Permits summaries of voluminous records that cannot be conveniently examined in court. If the summary performs simple math or compilation, no expert qualification is required.
Form 1098‑T: An information return from educational institutions reporting qualified tuition and related expenses. A systemic absence of 1098‑Ts connected to AOTC claims can be circumstantial evidence of fraud.
PTIN: Preparer Tax Identification Number; unique ID required for paid preparers. Using another person’s PTIN can conceal who actually prepared a return.
Constructive amendment vs variance: A constructive amendment changes the charge after the grand jury has spoken—reversible per se. A variance is a difference between indictment allegations and trial proof; it is reversible only if it prejudices the defense. Strong jury instructions can prevent both.
Sentencing “tax loss” (U.S.S.G. § 2T1.1/§ 2T4.1): The Guidelines use estimated tax loss to determine the base offense level. Courts may make reasonable estimates when exact calculation is impractical and can consider related acts as “relevant conduct.”
Relevant conduct (U.S.S.G. § 1B1.3(a)(2)): Allows courts to include acts part of the same course of conduct or common scheme as the offense of conviction, assessed via temporal proximity, similarity, and regularity—even if those acts occurred at a different employer.
Mitigating role (U.S.S.G. § 3B1.2): A reduction applies if the defendant is substantially less culpable than the “average participant.” It is not enough to be less involved than some others; the defendant must be relatively peripheral.

Conclusion

United States v. Earnest is a comprehensive affirmation of evidentiary and sentencing tools frequently used in tax-preparer fraud prosecutions. The Fifth Circuit:

Validated admission of prior IRS audits and civil penalties under Rule 404(b) to prove intent and knowledge where the prior and charged conduct share a common pattern (claiming credits lacking required documentation), despite involving different credits and a different employer.
Confirmed that a Rule 1006 summary of voluminous returns performing simple math does not trigger Daubert and can be received without expert testimony.
Rejected constructive-amendment challenges where robust limiting instructions cabin the purpose of other-acts evidence and the indictment itself specifies “Education Credits.”
Approved reliance on circumstantial evidence (including PTIN misuse) to sustain an aiding-and-assisting conviction.
Endorsed a conservative, record-based tax-loss estimate that drew on the systemic absence of Forms 1098‑T and included closely related conduct at another firm as relevant conduct under § 1B1.3.
Clarified that a mitigating role reduction requires proof of peripherality compared to the average participant, not simply doing less than some co-conspirators.

The decision meaningfully clarifies Fifth Circuit law on the intersection of evidentiary rules and tax-fraud sentencing. It signals that courts may take a holistic, pattern-based view of documentation failures across years and even across employers, provided the schemes are sufficiently similar and temporally connected, and that summary presentations of voluminous return data can proceed without expert testimony. Going forward, prosecutors will lean on these holdings to streamline proof and sentencing, while defense counsel must be prepared with concrete, transaction-level rebuttal evidence and a carefully articulated sentencing narrative to counter loss estimates and role assessments.