A Coatesville woman is the target of federal allegations that her tax-preparation business may have defrauded the government of more than $7 million - an accusations she denies.

Chalamar Muhammad, 37, prepared "federal income tax returns for customers, claiming fabricated deductions and credits," said a Justice Department news release issued yesterday. Her husband, Curtis Muhammad, 49, and her mother, Doranna Muhammad, of Thorndale, assisted her, according to the release.

Federal officials filed a lawsuit yesterday seeking to bar the Muhammads from preparing federal income tax returns. The suit said the defendants have used "at least 10 business names" since 2002, including WFM Business Management Systems Inc., Tax Preparation and Financial Services, and CDC Tax Preparation and Financial Services.

Reached separately by telephone, both Chalamar and Curtis Muhammad said they had not seen the complaint and had received no warning that it was coming. They said they believed the government was trying to link them to Chalamar Muhammad's father, who died in February 2006.

She said that her father, Chester Muhammad, ran a tax-preparation business and that she assisted with data entry. She said that he was under criminal investigation when he died and that she later started her own business.

"Nobody does fraudulent tax returns here," said Curtis Muhammad. "That is a blatant lie."

Asked whether criminal charges were pending in this case, Charles Miller, a spokesman for the tax division of the Justice Department, declined to comment.

Chalamar Muhammad said she has had periodic contact with IRS investigators, supplying them with documents and meeting with them in Philadelphia over the summer.

"I went down there on faith, knowing that I wasn't doing anything wrong," she said. "I think they got angry when my father died and they couldn't get him, so now they're going after me."

The complaint said Chalamar Muhammad changed her business name and IRS electronic filing number frequently in order to stay a step ahead of authorities.

"On several occasions after the IRS audited one of the Muhammads' customers, Chalamar or another person at the Muhammads' business prepared an amended tax return" or appeal and sent fabricated letters and documents to the IRS to reverse the results, the complaint alleged.

The complaint said the Muhammads' business filed 2,633 tax returns since 2003, but that the total customer base "is not known" because Chalamar Muhammad provided an "incomplete list." Fewer than 1 percent of the 2,633 returns identify a paid tax preparer as required by law, the complaint said.

The IRS estimates an approximate loss of $2,927 on each of the returns. That "yields an estimated total harm to the Treasury of $7.04 million for tax years 2003 to 2007," the complaint said.

Chalamar Muhammad said that she never prepared any returns until she started her own business and that she supplied the IRS with a complete list, estimating that she prepared 30 to 35 returns in 2006 and 2007.

Chalamar Muhammad, who works as a substitute teacher, said she started her own tax-preparation business to supplement her mother's Social Security income.

"I will give it up if that's what they want," she said. "We'll find another way; it's not worth my life and my sanity."

Contact staff writer Kathleen Brady Shea at 610-701-7625 or kbrady@phillynews.com.