Can you go to jail for 1099 fraud?

| by Max Soni

Thanks for visiting Spodek Law Group. We’re a second-generation law firm managed by Todd Spodek, with over 40 years of combined experience handling federal criminal cases – including tax fraud prosecutions that carry serious prison time. We’ve represented clients in cases that made national headlines, like the Anna Delvey Netflix series and the Ghislaine Maxwell juror misconduct case. If you’re reading this article, you’re probably worried about potential criminal exposure related to 1099 forms, and you should be – because yes, 1099 fraud absolutely can land you in federal prison.

This article covers what the government considers 1099 fraud, actual prison sentences people are receiving in 2025, and what you need to do immediately if you’re under investigation. You need this information because tax fraud cases move fast once IRS Criminal Investigation gets involved, and they maintain a 90% federal conviction rate. You can trust what you read here because we’ve defended clients against federal prosecutors who build these exact cases.

1099 fraud isn’t one thing – it’s a category of criminal conduct involving false statements on tax documents. The most common scenarios: business owners filing fake 1099-MISC or 1099-NEC forms to claim false deductions, individuals submitting fraudulent 1099-OID forms claiming bogus withholdings from secret government accounts that don’t exist, and employers intentionally misclassifying employees as 1099 contractors to dodge payroll taxes. All three can result in federal felony charges.

Under 26 USC 7206, willfully making false statements on tax returns or related documents carries up to three years in federal prison, plus fines up to $250,000 for individuals. That’s the statute prosecutors typically use for 1099 fraud cases. It doesn’t require proof that you succeeded in getting a fraudulent refund – just that you knowingly filed false documents with intent to violate tax laws. The moment you sign a tax return or submit a 1099 form you know contains material false information, you’ve potentially committed a federal crime.

People are going to prison for this right now, not hypothetically. In September 2025, Allen Brown from Augusta got 46 months in federal prison for operating a “ghost” tax preparation business involving fraudulent returns. Four tax preparers received a combined 105 months in July 2025 for defrauding the IRS. Jonathan Carillo got 121 months, Franklin Carter Jr. received 84 months – these are real sentences handed down in federal court in 2025 for tax fraud schemes involving false documents like 1099 forms. Federal judges don’t play games with tax fraud.

The 1099-OID fraud scheme deserves special attention because the IRS is actively prosecuting it. Promoters tell people they can claim massive withholdings on Form 1099-OID based on some theory about secret Treasury accounts the government supposedly maintains for every citizen. It’s completely fabricated nonsense, and the IRS included it on their 2025 “Dirty Dozen” list of tax scams. If someone sold you on this scheme, you’re in danger – and the person who told you about it probably is too. Previous 1099-OID prosecutions resulted in 18-month prison sentences, and that was before the IRS put it on their priority enforcement list.

Worker misclassification becomes criminal fraud when it’s intentional. Accidentally treating someone as a 1099 contractor when they should be a W-2 employee results in civil penalties. But when prosecutors can prove you knowingly misclassified workers to evade payroll taxes, you’re looking at criminal charges with penalties up to $1,000 per worker and up to one year in prison per violation. In major fraud cases, employers have faced criminal fines reaching $500,000 and multi-year prison sentences.

IRS Criminal Investigation targets you differently than a regular audit. IRS-CI special agents are federal law enforcement officers who carry guns and badges. They’re not accountants trying to collect money; they’re criminal investigators building a prosecution case. When they contact you, anything you say can and will be used against you in federal court. Many people make the fatal mistake of thinking they can explain their way out of trouble. Your case is over the moment you talk to IRS-CI without legal representation.

That 90% conviction rate tells you everything – IRS-CI doesn’t open investigations unless they’re fairly certain they can prove criminal conduct. If they’re investigating you, they already believe they have evidence. By the time you know you’re under investigation, they’ve likely reviewed bank records, interviewed witnesses, analyzed tax returns for multiple years, and consulted with prosecutors.

Sentencing in federal tax fraud cases depends on the amount of tax loss involved. Small tax loss – under $6,500 – might result in probation if you have no criminal history. Tax loss between $40,000 and $95,000 puts you in the range where prison becomes likely, typically 10-16 months. Once tax loss exceeds $250,000, you’re looking at 51-63 months before any adjustments. Judges can vary from the guidelines after United States v. Booker, but the tax loss calculation remains the starting point for every sentencing analysis.

Two things can dramatically reduce your sentence: acceptance of responsibility and substantial assistance. Acceptance of responsibility means pleading guilty and not minimizing your conduct – it typically reduces your sentence by 2-3 levels, which can mean the difference between prison and probation in borderline cases. Substantial assistance under 5K1.1 means cooperating with prosecutors to build cases against others involved in the fraud scheme. Early cooperation before charges are filed gives you the most leverage. Once you’re indicted, your bargaining position weakens significantly.

Some people think they can avoid prosecution by filing amended returns to correct the false 1099 information. That doesn’t erase criminal exposure for documents you already filed. The crime occurred when you submitted the false form – amending it later shows consciousness of guilt more than good faith. You should absolutely not file amended returns or make voluntary disclosures without first consulting a criminal defense attorney who handles federal tax cases.

At Spodek Law Group – we’ve handled federal white-collar cases involving tax fraud, securities fraud, and wire fraud where clients faced decades in prison. Many of the cases we’re famous for handling were cases other attorneys said couldn’t be won. Our approach focuses on early intervention before charges are filed, because that’s when you have the most options – cooperation agreements, voluntary disclosure programs, or pre-indictment negotiations.

If you’re contacted by IRS-CI, if you receive a grand jury subpoena, if your accountant tells you the IRS is asking questions – you need a lawyer immediately. Federal prosecutors don’t care about your explanation or good intentions. They care about provable facts: what documents you signed, what statements you made under penalty of perjury, what amounts you reported. Every conversation with federal agents without a lawyer present gives them more evidence to use against you.

Can you go to jail for 1099 fraud? Yes – and people are going to prison for it in 2025 with sentences ranging from 18 months to over 10 years. If you have criminal exposure related to false 1099 forms, the time to act is before the government contacts you. Once IRS-CI shows up at your door, your options narrow dramatically. We can help you understand your exposure, evaluate whether voluntary disclosure makes sense, and represent you if the government opens an investigation – but only if you reach out before you’ve already talked yourself into a conviction.