Protect Yourself Against Tax Preparer Fraud
Tax Preparer Fraud is a Real Threat
As you know, I enthusiastically encourage people, especially if you’re self-employed or have a side hustle, to get professional help when preparing your taxes. There are so many things you can miss if you “DIY”, and we want to avoid leaving money on the table.
That said, there is a dark side to this and I’m going to help you avoid it. One of the most common financial scams this time of year is tax preparer fraud. This is nothing new. I’ve seen this fraud many times over the past 30+ years, but it has gotten worse since technology has actually made it easier.
In a nutshell, tax preparer fraud is when they file a return on your behalf that is incorrect, or downright fraudulent. They do this to inflate your refund, or even worse, redirect your fraudulent refund to one of their bank accounts.
Remember, YOU are ultimately responsible for what is on your tax return so make sure you review it and ask questions about anything you don’t understand before it is filed.
I will do another email/video on specifically what to look for, but this email will get you started. The stakes are high - if the IRS determines that the return you filed is fraudulent, the penalties and interest can be through the roof. Yes, you can report the fraudulent preparer to the IRS, and they may even have to serve jail time, but how about we avoid the mess in the first place?
Warning signs of tax preparer fraud
Here are a few of the main warning signs that a tax preparer may be shady:
They promise you a large refund (sometimes before even looking at your data)
They base their fee on a percentage of the amount of refund (this is a conflict of interest and encourages fraud)
They have the refund deposited into their bank account, and say it is faster that way, promising to send you the balance after they deduct their fee
They don’t ask for any documents to support your deductions and may even “make up” deductions for you
They ask you to sign a blank tax form and say they will file it for you later (electronically or otherwise)
They electronically file your return without consent, and without a chance for you to review it first
They are a “ghost preparer”, i.e. they do not sign your return as the preparer (most likely because they are not licensed/approved by the IRS)
They never give you a copy of the final return, leaving you in the dark about what was sent to the IRS (in effect, hiding their fraud)
How to protect yourself
The best place to start is by making sure you use a tax preparer that has been approved by the IRS. You can do a search of all approved tax preparers on the IRS’ site https://irs.treasury.gov/rpo/rpo.jsf.
Just because they are on this list, does not mean they are honest; however, it does mean they are approved by the IRS, therefore have more to lose if they file fraudulent returns (fines, penalties, loss of license, and even jail time). Finally, be sure you check references from people you trust that have used them, if possible.
Also, review your tax return before it is filed. If the preparer does not allow you to do that, then run! You don’t need the smoke that comes with a fraudulent return. I’ll share more details on how to “read” a tax return later, but here is a quick summary of things to beware of:
Deductions on the return that you KNOW you don’t have receipts or any support for
Income on the return that you KNOW does not match your W-2’s 1099’s, or business income
Fake dependents (claiming kids, parents, or relatives as dependents that you do not actually support)
Bank information for your refund is an account you do not recognize (i.e. not YOUR bank account)
Remember, you have the power. If you don’t understand something, ask. Don’t be ashamed to admit you don’t understand the “ins and outs” of taxes, very few people do! You just need a high-level, common sense approach. If it looks too good to be true it probably is. Your tax preparer owes you the time and respect to walk you through what is filed, and to explain it in a way that makes you comfortable. If they don’t do that, it’s time to find another preparer.
I hope this helps! Please forward to anyone you think will benefit, and please protect yourself, and those you love (especially our seniors) from this type of fraud.