Is this tax fraud.......?

Since it's a friend of a friend of a friend of someone who knows someone I don't think you need to really concern yourself.  I'm sure you are well as insulated and will not be sought by the IRS.  It's not impossible to start a business for $100 or even less.  Particularly if you have no desire or intention of making money in the process.  

Promising to get someone twice as much on their tax return is not ill legal either.  Most "loopholes" are actually miss understandings of the person preparing the tax return and not genuine ways to increase your refund. The person or person or company completing the tax return is supposed to be identified on the tax return.  Both the tax preparer and the text payer can be prosecuted for tax fraud.

Yes! If they get AUDITED they will have to prove all the expenses from this business. If they can't prove it the will have to repay all the money. If they are trying to buy a house in the next year or two this return could possible hurt their changes of getting a home. Yes mortgage companies now verify everything on your tax return because of the foreclosures since 2008.

If they're filing business taxes and they don't actually have a business? Um, yeah, that would certainly be considered fraud by the IRS -- and by anyone with a conscience.