Phishing, phone scams, identity theft… there’s so much to be vigilant against during the tax season. But one thing we as tax preparers need to be wary of – and warn others about – is tax preparer fraud. As tax preparers, we are trusted advisors to our clients. Taxpayers come to us for guidance and peace of mind. No matter how little they hope to pay in taxes, they should rest assured that are reducing their tax liability with accordance to the law.
Tax Fraud in the News
Unfortunately, tax preparers don’t always follow the due diligence practices they are required to keep. Here are some recent examples from the news.
One woman was recently sentenced to 46 months in prison for tax fraud. The documents revealed that McCauley collected fees as a percentage of the tax refunds she claimed for her customers. To inflate those refunds, she knowingly placed false items in her customers’ income tax returns.
Another pair of tax preparers whose business was booming due to their reputation for producing large refunds were recently sentenced after the IRS discovered they were routinely adding fictitious information to clients’ personal returns to inflate refunds.
Not only was this tax preparer busted for obstructing the IRS, when his business was banned from preparing tax returns, he opened up a few more under different names.
While we all strive to serve our clients by helping them pay the lowest tax liability, and while we all may want to “stick it to the IRS” sometimes, we also must follow the law. In the long run, not doing your due diligence could mean steep IRS penalties, even if it was the tax preparer who made the errors.
Red Flags
It’s also important to educate your clients and community about the dangers of not vetting your tax preparer. You may follow the law, but that doesn’t mean the person who hangs a shingle in the same town does. And being outspoken about this problem could help elevate your status as a trusted tax advisor in the community. Here are some red flags to share.
- They promise an inflated tax refund.
- They charge based on a percentage of your refund (which is illegal).
- They don’t have a Preparer Tax Identification Number (PTIN).
- They claim to be endorsed by the IRS (the IRS does not endorse any tax preparer).
- They say your refund will be deposited in their bank account.
- They don’t sign your return.
- You’re asked to sign a return that is incomplete.
Stay vigilant, tax preparers!