About Tax Return Preparation
Tax return preparation is when people choose someone other than themselves to prepare their tax returns. Often, they find these people through family and friend referrals. It is critical to do due diligence when choosing preparers, as scams run rampant in this market. The client submits documents and receipts as necessary to the preparer, and pays a fee for the work.
How Does It Work?
The Internal Revenue Service points out that the majority of tax return preparers are legitimate but that fraudsters do exist. They operate through scams that include identity theft and falsifying information, such as inflating expenses. The IRS cautions taxpayers to beware of preparers who claim they can get more money back than other preparers and who ask for a percentage of the refund as their fee. In many cases, the clients do not know about the fraud. Regardless, if the IRS finds out, the agency may hold taxpayers liable for penalties such as further tax, fees and prosecution. In identity fraud, an unethical preparer uses someone else’s Social Security number to file a return and get a refund before the true person can do so.
Unscrupulous tax return preparers ask for money in several ways. Often, they want a percentage of the refund as opposed to a fee or hourly rate disclosed up front. Sometimes, they ask for clients to give them the money for their health insurance penalty payments. Other times, they tell clients to direct deposit refunds into an account that does not belong to them.
It is important for clients to ask their return preparers what they do if the IRS flags a return; many do not require clients to pay additional fees because the preparers should have caught any potential red flags. Return preparers such as enrolled agents, certified public accountants and attorneys can fully represent their clients. Some other legitimate preparers have limited representation rights.
Customer Service Contact Info
The IRS, through IRS.gov, provides several ways for taxpayers to report scams. The IRS also gives a comprehensive overview of many tax-related scams and how to prevent them. Taxpayers should also report scams to the Federal Trade Commission at https://www.ftccomplaintassistant.gov/, and the Treasury Inspector General for Tax Administration at https://www.treasury.gov/tigta/contact_report.shtml.
The IRS works hard to educate taxpayers about fraud because it wants the tax business to have a good reputation. Many tax return preparers do honest and valuable work, but there is plenty of opportunity for scammers. Taxpayers should safeguard themselves by following IRS tips such as working only with someone who has a Preparer Tax Identification Number and who is in a professional association. Taxpayers should investigate a preparer’s history; for instance, if the person is a CPA, a taxpayer should check the state boards of accountancy. Tax preparers should give clients the option for e-file and should never ask clients to sign a blank return. It is critical that taxpayers review the information on their returns before signing it; they are held accountable for mistakes.
Common complaints for tax return preparers, even legitimate ones, include error allegations, saying that preparers made a mistake that later forced a taxpayer to pay fees or fines to make amends. Other complaints center around unresponsive preparers; they simply do not respond to communication attempts, especially near deadlines. Billing, rudeness and no refund make up many other complaints.
There is enough information out there that taxpayers should be able to protect themselves against most tax return preparation scams. With enough attention to detail, a taxpayer can be certain, or nearly certain, that he or she is working with a legitimate preparer. Still, there will always be a market for shady return preparers who prey on groups such as the elderly and people who need money fast.
Final Verdict: Tax preparation itself is NOT a scam. However, there are people out there who will use it in an attempt to scam you.