Though most people who prepare tax returns are professionals and render correct, honest, thoughtful and excellent service to their tax return clients, some DO occasionally make a basic math error of miss a deduction. Those aren’t the people you need to beware of. No, I’m talking about the fly-by-night types that engage in fraud and other illegal activities. These scammers set up shop one day and are gone a few weeks later. When the unsuspecting tax filer discovers their mistakes and fraud, these guys are no where to be found.
Dishonest tax return preparers can cause big trouble for taxpayers who fall victim to their ploys because regardless who prepared the tax return, the taxpayer is still responsible.
How do these tax scammers make their money?
- Skimming a portion of their clients’ refunds by charging the client a percentage of their tax refund as a fee. The higher the refund, the higher the fee.
- Charging inflated fees for less than stellar tax return preparation.
- Flat out false promises of refunds or tax deductions.
- Identity theft. These scammers have everything they need to steal and/or sell your identity (adding insult to injury).
Choose your tax professional carefully
Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against dozens of others. To increase taxpayer confidence in the tax system and improve compliance with the tax law, the IRS has implemented a number of requirements for paid tax preparers, including registration with the IRS, as well as competency tests and ongoing continuing professional education. The new regulations require paid tax preparers (including attorneys, CPAs, and enrolled agents) to apply for a Preparer Tax Identification Number (PTIN) before preparing any federal tax returns.
While higher standards for the tax preparer community will result in greater compliance with tax laws, increase confidence in the tax system and ultimately lead to a better experience for taxpayers, it all comes at a cost and those costs are bound to be passed along to the tax filer.
Filing false or misleading tax forms
IRS personnel report cases where scam artists file false or misleading returns to claim refunds to which they themselves are not entitled. In one variation of this scheme, a taxpayer seeks a refund by fabricating an information return and falsely claiming the corresponding amount as withholding. Phony information returns, such as a Form 1099 Original Issue Discount (OID), which claims false withholding credits, are usually used to legitimize erroneous refund claims.
Another version of the scheme is based on the bogus theory that the federal government maintains secret accounts for its citizens and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS. The IRS continues to see cases where people file false or fraudulent tax returns to try to obtain improper tax refunds.
The IRS takes refund fraud seriously, has programs to aggressively combat it and stops the vast majority of incorrect refunds. Because scammers often use information from family or friends in filing false or fraudulent returns, beware of requests for such data. Don’t fall prey to people who encourage you to claim deductions or credits you are not entitled to or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even worse, face criminal prosecution.
How to avoid being scammed
First, make sure you thoroughly check out anyone you’re considering as a tax preparer. Ask them for their PTIN and ask about their testing and professional education.
Second, unless you have a severely complicated return, do your taxes yourself. TurboTax is my tax preparation software of choice and H&R Block is another one that’s very good as well (I used them for 14 years before switching to TurboTax). TurboTax is exceptionally easy and with the proper documentation, I believe my 12 year old son could do my taxes. The software is THAT EASY!
So give it a shot and try TurboTax. You don’t even have to pay anything unless you actually file!