Chernomordikov: Fraud Penalties and Tax Preparer Red Flags

In Chernomordikov v. Commissioner, the U.S. Tax Court addressed a case involving sloppy accounting and poor record keeping by businessman Mark Chernomordikov. The consolidated cases (Docket Nos. 35205-21 and 35297-21), filed December 15, 2025, involved Mark and Jessica Chernomordikov and revealed significant deficiencies stemming from inadequate documentation, commingling of personal and business expenses, and questionable financial practices.

One particularly interesting aspect of the case is the way that Mr. Chernomordikov's lack of education and low sophistication weighed in his favor when evaluating the steep fraud penalties under Section 6651(f) (fraudulent failure to file) and Section 6663 (fraud penalty). The court considered the taxpayer's background, education level, and understanding of tax matters as factors in determining whether fraud had been committed. The taxpayer's limited sophistication and lack of understanding of complex tax rules cut against a finding of fraud, as it suggested that errors may have resulted from ignorance or negligence rather than intentional wrongdoing. Sometimes it pays off to be ignorant—at least in terms of avoiding the severe fraud penalties that can apply.

Another notable fact is that the tax preparer quoted his fee based on a percentage of the amount of tax savings. This fee structure is a significant red flag, as it creates an incentive for the preparer to take aggressive positions that may not be supportable. Percentage-based fee arrangements align the preparer's financial interests directly with tax reduction rather than accuracy, potentially exposing taxpayers to penalties, interest, and additional liabilities.

Overall, the case is a clear reminder to businesspeople moving money, paying for personal expenses, and failing to pay taxes—make sure your tax preparer is on the up and up. Taxpayers who engage preparers with questionable practices, such as percentage-based fees tied to tax savings, risk significant exposure. The case also underscores the importance of maintaining proper books and records to support income and deductions and to properly separate business and personal expenses.