Tax Return Preparer Fraud

If It Seems Too Good to Be True, It Probably Is

Tax Return Preparer Fraud

Mike Habib, EA

Dishonest tax return preparers can cause many problems for taxpayers who fall victim to their schemes. These scam artists make their money in a number of ways including skimming a portion of their clients’ refunds, charging a percentage of the return and charging inflated fees for return preparation services.

Return preparer fraud generally means the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may manipulate income figures to fraudulently obtain tax credits.

Sometimes, the client, or the taxpayer may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on his or her tax return. When the IRS detects the false return, the taxpayer – not the return preparer – must pay the additional taxes and interest and may be subject to penalties.

When choosing a tax preparer, you should be as careful as you are when choosing a doctor or lawyer. Failure to do so could end up costing you a lot of money.

Here are some things to consider when hiring someone to prepare your tax return:

  • Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.
  • Avoid preparers who base their fee on a percentage of the amount of the refund.
  • Use a reputable tax professional who signs your tax return and provides you with a copy for your records.
  • Find out the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents (EAs) can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may, on a limited basis, only represent taxpayers for audits of returns they actually prepared.
  • Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.
  • Review your return before you sign it and ask questions on entries you don’t understand.
  • No matter who prepares your tax return, you, the taxpayer, are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.
  • Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
  • Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?

The majority of preparers are reputable and trustworthy, but it is up to each individual to ensure that they are dealing with someone who is truly qualified and on the up-and-up. Preparers that are reputable will ask to see your receipts. They’ll ask you questions to determine which expenses and deductions you are eligible for. They will allow you to review your return, ask any questions necessary and they will sign your return once you understand and agree with everything they are claiming on your behalf. If they are trying to promote deductions or exemptions that aren’t clear, offer huge returns, or don’t seem to apply to your situation, you need to beware.

Remember that no matter who prepares your tax return, you, the taxpayer, are ultimately responsible for all of the information on your tax return.

If you suspect tax fraud, or are aware of a return preparer who is filing false returns, you can report this activity to the IRS, through Form 3949-A, Information Referral, by downloading it at www.IRS.gov, or by calling 1-800-829-3676 to order it by mail. You are not required to identify yourself, if you do – your identity will be kept confidential and you may even be entitled to a reward.

Are you a victim of tax preparer fraud? We have represented taxpayers who were victims of tax preparer fraud, and could represent you too. Call us today.