The Internal Revenue Service warns taxpayers to be alert to unscrupulous tax return preparers promising inflated tax refunds. This is a common scam tactic during filing season, so be wary if your tax preparer says he or she can get you more money than their competitors or boasts of refunds substantially larger than you have routinely seen.
Con artists promising overly large refunds frequently prey on older Americans, low-income taxpayers and those who don’t have a filing requirement. They may also victimize non-English speakers who may or may not have a requirement to file a tax return.
Scam artists can use flyers, advertisements, phony storefronts or word-of-mouth to attract victims. They may even make presentations through community groups or churches.
These unscrupulous individuals may dupe people into making claims for fictitious rebates, benefits or tax credits. They may also file a false return in a client’s name, and the client never knows that a refund was paid.
Cons may also target those with a filing requirement who are due a tax refund. This may be done by promising larger refunds based on fake Social Security benefits and false claims for education credits or the Earned Income Tax Credit (EITC), among others.
It is important to choose carefully when hiring an individual or firm to prepare your tax returns. 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 often do this to increase their fee.
Honest tax preparers provide their customers a copy of the tax return they’ve prepared. Scam victims frequently are not given a copy of what was filed. Victims also report that the fraudulent tax refund is deposited into the scammer’s bank account. The scammers deduct a large “fee” before paying victims, a practice not used by legitimate tax preparers.
You can help protect yourself by taking some simple steps before choosing a tax preparer. Start with the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool can help you find a professional tax return preparer with the right qualifications. The Directory is a searchable and sortable listing of 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
The IRS also urges taxpayers to learn how to protect themselves by reviewing safety tips prepared by the Security Summit, a collaborative effort between the IRS, state revenue departments and the private-sector tax community. (Search for Security Summit on IRS.gov.)
Here are a few tips to consider to help avoid fraudsters:
- Look for a preparer who is available year-round. In the event questions come up about a tax return, taxpayers may need to contact the preparer after the filing season is over.
- 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. Because tax law can be complex, competent tax preparers remain up-to-date on tax topics. The IRS website has more information regarding national tax professional organizations.
- Check the preparer’s qualifications. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications (https://irs.treasury.gov/rpo/rpo.jsf). This tool can help locate a preparer with the preferred qualifications. A searchable and sortable listing of tax preparers registered with the IRS, the directory includes the name, city, state and zip code of attorneys, CPAs, enrolled agents, Annual Filing Season Program participants, enrolled retirement plan agents and enrolled actuaries.
- Check the preparer’s history. Visit the Better Business Bureau’s website to check on the preparer. Look 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 if merely inquiring about their services and fees. Unfortunately, some unscrupulous preparers have used this information to improperly file returns without the taxpayer’s permission.
- 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. Since electronic filing began in the 1980s, the IRS has processed more than 1.5 billion e-filed individual tax returns. It’s the safest and most accurate way to file.
- Provide records and receipts. Good preparers ask to see these documents. They’ll also ask questions to determine your total income, deductions, tax credits and other items. Do not hire a preparer who e-files a tax 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 tax return. However, non-credentialed preparers who do not participate in this program may only represent clients on returns they prepared and signed before the end of 2015.
- Never sign a blank or incomplete return.
- Review the tax return before signing. Be sure to ask questions if something is not clear or appears inaccurate. Any refund should go directly to the taxpayer – 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. 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.
To review other “Dirty Dozen” tax scams over the years, visit IRS.gov and type “Dirty Dozen” in the search box. For additional information on choosing a preparer, the differences in credentials and qualifications, and how to submit a complaint regarding an unscrupulous tax return preparer, visit www.irs.gov/chooseataxpro.
Remember, you are legally responsible for the accuracy of your tax return even if you pay someone else to prepare it. Taxpayers who buy into scams can end up being penalized for filing false claims or receiving fraudulent refunds.
“Taking some basic security steps and being cautious can help protect people and their sensitive tax and financial data,” Rettig said.