A 68-year-old Tucson woman who ran a local tax preparation business has been convicted on 22 counts of filing fabricated federal income tax returns for clients who were unaware of the inflated deductions on their paperwork. Darlene Musgrove now faces sentencing early next year after a federal jury found that she padded client returns to chase bigger refunds and repeat business.
Twelve clients testified at the trial in Tucson that they did not have the deductions listed on their returns and were unaware the claims had been fabricated, according to KTAR News 92.3 FM. Those clients told the court their refunds came back larger than in previous years, and prosecutors argued Musgrove sought those bigger refunds specifically to encourage customers to keep coming back. The case was tried in the U.S. District Court for the District of Arizona, with Senior U.S. District Judge Raner C. Collins presiding, according to the Department of Justice, which noted the case was investigated by IRS Criminal Investigation and prosecuted out of the U.S. Attorney's Office in Tucson.
Musgrove operated her business, Darlene's Tax Service, out of a storefront at 6702 S. 10th Avenue in Tucson. The unaccredited firm had multiple negative customer reviews.
What the Fabricated Returns Cost the Treasury
The 22 fabricated returns at issue in the trial resulted in roughly $127,166 in total tax loss to the federal government, per prosecutors with the U.S. Attorney's Office for the District of Arizona. Musgrove now faces a maximum sentence of three years in prison and a $100,000 fine, with sentencing set for February 23, 2027.
That maximum reflects just one count. Under 26 U.S.C. § 7206(2), each count carries up to three years in prison.
Clients Left Facing Audits and Repayment Demands
Affected clients may face audits, penalties, and repayment demands, according to KOLD-TV.
Federal Tax Fraud Sentencing
Musgrove's case lands amid a sharp rise in federal tax fraud enforcement. In its Fiscal Year 2025 Annual Report, IRS Criminal Investigation identified $10.59 billion in total financial crimes, including $4.5 billion in tax fraud alone — a 111.8% jump in identified tax fraud losses compared to the prior fiscal year, with prosecution referrals to the Department of Justice up 14% over the same period.
IRS Criminal Investigation data published in February also showed the agency investigated 1,394 refund fraud cases totaling $2.9 billion in alleged losses between FY2023 and FY2025, with Bank Secrecy Act financial filings tied to 99% of those cases — suspicious activity reports and banking metrics that often serve as the first trigger for these federal probes. A Government Accountability Office report estimated that tax fraud costs the U.S. government between $116 billion and $304 billion annually, underscoring how a single Tucson case fits into a far larger national problem.
National sentencing data from Fiscal Year 2024 shows that 66% of people convicted of federal tax fraud received active prison time, serving an average of 15 months in custody, according to the Law Offices of Scott B. Saul. Federal sentencing guidelines consider tax loss and other sentencing adjustments.
Arizona federal courts have handed down real prison time in similar cases before. In July 2024, Chandler tax preparer gets prison time after Napoleon Tabot was sentenced to 18 months for a scheme that caused a loss exceeding $500,000 to the U.S. government; Tabot also received three years of supervised release and was ordered to pay $397,818 in restitution.
