Yes.....sue in small claims and can report to IRS the circumstances to put tax preparer on the black list....but tell the preparer you will do so unless you get your money...they may capitulate without actually having to act on your threat.
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You can sue, that's easy, winning is a tougher challenge, even winning a motion to dismiss is tougher, use avvo asap to consult a local attorney
Can you sue? Probably. Consider the costs of court and attorney time to even get it rolling, it would likely be economically impractical to proceed with that course of action.
I would be more concerned about the potential fraud, misrepresentations, and related misconduct where she was not afforded an opportunity to review the return before it was filed on her behalf. Also that the refund was double is a cause for concern due to tax fraud.
On one hand there are tax issues to resolve with the IRS (especially if the return is selected for audit) then there are civil/consumer issues with the preparer. The preparer has their own outstanding potential liabilities with the IRS (see generally: http://www.irs.gov/pub/irs-utl/return_preparer_penalties.pdf)
She should call the IRS hotline and get a copy of the return that was filed to see if there is a urgent need to amend. That's the first step before figuring out the way forward. Then she should likely figure out if there are more serious tax or civil/consumer issues and book an initial client consultation with the right type of lawyer - most should offer a free initial client consultation just to discuss the situation so she won't be out any further money.
Best of luck
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You can pretty much sue anyone as long as it's not frivolous. However, in your case, you should prepare and file IRS form 14157, "Complaint: Tax Return Preparer." If they stole from your mother in law then they've probably stolen from a lot more people you don't know about. And yes, she can simultaneously file a small claims action for the total amount of the refund. She might even consider reporting it as a theft to her local law enforcement agency.