WASHINGTON — With more than half of the nation's taxpayers relying on someone else to prepare their tax return, the Internal Revenue Service reminded consumers to be on the lookout for unscrupulous tax preparers looking to make a fast buck from honest people seeking tax assistance.
Again, this year, the IRS included tax return preparer fraud on its "Dirty Dozen" watch list of common tax scams. The agency wants taxpayers to be on the lookout for unscrupulous return preparers and help protect their sensitive financial and tax data.
The majority of tax professionals provide honest, high-quality service. But there are some dishonest preparers who operate each filing season to perpetrate refund fraud, identity theft and other scams that hurt honest taxpayers. That's why unscrupulous preparers who prey on unsuspecting taxpayers with outlandish promises of overly large refunds make the “Dirty Dozen” list.
Tax return preparers are a vital part of the U.S. tax system. About 56 percent of taxpayers use tax professionals to prepare their returns.
Selecting the right tax professional is critically important because taxpayers are ultimately responsible for what they submit on their tax return.
The IRS is also working to protect taxpayers from shady return preparers. The pursuit of illegal scams can lead to significant penalties and interest as well as possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and prosecutes the criminals behind them.
Choose Return Preparers Carefully
It is important to choose carefully when hiring an individual or firm to prepare a tax return. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to claim. Scam preparers may take this step in order to increase their fee. Every year, these types of tax preparers encounter everything from stiff penalties to jail time for defrauding their clients.
Here are a few tips for taxpayers to consider to help avoid a fraudster when choosing a tax preparer:
- Avoid fly-by-night preparers. Make sure the preparer will be available if needed, even after the return is filed. In the event questions come up about a tax return, taxpayers may need to contact the preparer.
- Ask if the preparer has an IRS Preparer Tax Identification Number (PTIN). Paid tax return preparers are required to register with the IRS, have a PTIN and include it on tax returns.
- Inquire whether the tax return preparer has a professional credential (enrolled agent, certified public accountant or attorney), belongs to a professional organization or attends continuing education classes. Tax law can be complex. A competent tax professional needs to be up-to-date in these matters. The IRS website has more information regarding the national tax professional organizations.
- Check the preparer’s qualifications. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool can help locate a tax return preparer with the preferred qualifications.
- The Directory is a searchable and sortable listing of tax preparers registered with the IRS. It includes the name, city, state and zip code of:
- Enrolled Agents
- Enrolled Retirement Plan Agents
- Enrolled Actuaries
- Annual Filing Season Program participants
- Check the preparer’s history. Ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status” or check the Directory.
- Ask about service fees. Avoid preparers who base fees on a percentage of their client’s refund or boast bigger refunds than their competition. Don’t give tax documents, Social Security numbers or other information to a preparer when only inquiring about their services and fees. Unfortunately, some preparers have improperly filed returns without the taxpayer’s permission once the records were obtained.
- Make sure the preparer offers IRS e-file and ask to e-file the tax return. Paid preparers who do taxes for more than 10 clients generally must file electronically. The IRS has processed more than 1.5 billion e-filed tax returns. It’s the safest and most accurate way to file a return.
- Provide records and receipts. Good preparers will ask to see tax records and receipts. They’ll ask questions to determine the client’s total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file a return using a pay stub instead of a Form W-2. This is against IRS e-file rules.
- Understand representation rules. Attorneys, CPAs and enrolled agents can represent any client before the IRS in any situation. Annual Filing Season Program participants may represent taxpayers in limited situations if they prepared and signed the return. However, non-credentialed preparers who do not participate in the Annual Filing Season Program may only represent clients before the IRS on returns they prepared and signed on or before Dec. 31, 2015.
- Never sign a blank return. Don’t use a tax preparer that asks clients to sign an incomplete or blank tax form.
- Review the tax return before signing. Before a taxpayer signs a return, they should review it and ask questions if something is not clear. Taxpayers should ensure they are comfortable with the accuracy of the return and that the refund goes directly to them – not into the preparer’s bank account. Reviewing the routing and bank account number on the completed return is always a good idea.
- Report abusive tax preparers to the IRS. Taxpayers can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If a return preparer is suspected of filing or changing the return without the client’s consent, also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. Forms are available on IRS.gov.
Remember: Taxpayers are legally responsible for what is on their tax return even if someone else prepares it.