Tax scams, including fraudulent tax return preparation, cost taxpayers billions of dollars every year and is continuing to grow. The Internal Revenue Service reports that criminal investigations into fraudulent tax return preparers continue to rise.
Dishonest tax preparers can commit fraud in a number of ways. They can claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Fraudulent preparers also may manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.
Missing the signs that a preparer could be abusive could cause the taxpayer considerable financial problems. Some of the most common signs include:
• Claiming that they can obtain larger refunds then other preparers.
• Basing their fee on a percentage of the amount of the refund. Fees should be based on the complexity of the return, never on the size of the tax savings or refund.
• Claiming they can get you immediate payment of your return. Keep in mind that this is a loan. Fraudulent tax preparers often pad their pockets by giving cash up front at a high interest rate while presenting it as an instant refund from the federal government.
• Refusing to sign the tax return or provide the taxpayer a copy for his or her records. Always make sure that you have something in hand that shows proof of what transpired, and you should have a receipt for services rendered.
Taxpayers should be very careful when choosing tax preparers. While most preparers provide good service to their clients, a few unscrupulous tax preparers file false and fraudulent tax returns and ultimately defraud their clients. It is important for taxpayers to know that even if someone else prepares their return, they are ultimately responsible for all the information on the tax return. The Better Business Bureau, along with the IRS, recommends that taxpayers follow these tips when hiring a preparer:
• Get referrals from satisfied clients and check their BBB Business Review.
• Ask the preparer about their training, experience and current knowledge of tax law.
• Find out whether the preparer has ever represented taxpayers in an audit or has ever been denied eligibility to do so.
• Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months or even years after the return has been filed.
New tax laws related to COVID-19 can help create confusion that dishonest preparers will capitalize on, so taxpayers should always review their return before signing, ask questions on entries they do not understand. Also be sure to get a copy of the return for your records. Finally, do not ever sign a blank tax form or one filled out in pencil.
For more trustworthy consumer tips, visit BBB.org.