How to stay clear of shady tax preparers
Tips on carefully choosing tax professionals
How to avoid unscrupulous tax return preparers and how to find the right tax professional.
People should be careful of shady tax professionals and watch for common warning signs, including charging a fee based on the size of the refund. Some “ghost” tax preparers refuse to sign the tax return or ask people to sign a blank return. These are all common warning signs, and people should always rely on an experienced and trusted tax professional.
“Most tax professionals offer excellent advice and can really help people navigate complex tax issues. But there are we instances where unsuspecting taxpayers are “ghosted” by unscrupulous tax preparers with bad advice who quickly disappear,
Choose carefully: Check credentials of tax return preparers
Taxpayers should choose a tax preparer as carefully as they choose a doctor or lawyer. After all, the tax preparer is entrusted with sensitive personal and financial information. While there are different types of tax preparers with varying levels of credentials and qualifications, there are constants when it comes to finding a preparer:
- A taxpayer's individual needs will determine which kind of preparer is best for them.
- Taxpayers are ultimately responsible for all the information on their income tax return, regardless of who prepares the return.
- Tax professionals are required to have an IRS Preparer Tax Identification Number (PTIN) to prepare federal tax returns.
The IRS offers resources for taxpayers to educate themselves on types of preparers, representation rights, as well as a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This directory can help you find a return preparer with specific qualifications to fit your specific needs. The directory is searchable and sortable.
Don’t get ghosted: Avoid shady or self-serving tax professionals
Most tax return preparers provide outstanding and professional service. Unfortunately, there are also some unethical tax preparers that should be avoided at all costs.
A major red flag or bad sign is when the tax preparer is unwilling to sign the dotted line. Avoid these “ghost” preparers, who will prepare a tax return but refuse to sign or include their IRS Preparer Tax Identification Number (PTIN) as required by law.
Not signing the return could mean the preparer may be looking to make a quick profit by promising a big refund or charging fees based on the size of the refund. This leaves the taxpayer vulnerable and on the hook for any misinformation on the return. Taxpayers should never sign a blank or incomplete return.
Shady tax preparers may:
- Ask for a cash only payment without providing a receipt.
- Invent false income to try to get their clients more tax credits.
- Claim fake deductions to boost the size of the refund.
- Direct refunds into their bank account, not your account.
Taxpayers can report preparer misconduct to the IRS using Form 14157, Complaint: Tax Return Preparer. If a taxpayer suspects a tax return preparer filed or changed their tax return without their consent, they should file Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit.
Make a difference: Report fraud, scams and schemes
It is a wise idea to report individuals who promote improper and abusive tax schemes as well as tax return preparers who deliberately prepare improper returns.
To report an abusive tax scheme or a tax return preparer, people should mail or fax a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations.
Mail:
Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road Laguna Niguel, CA 92677-3405
Fax: 877-477-9135
Experience Counts
There are many weekend warriors who work for National Tax Firms, so if you choose someone who does tax preparation after taking an online course, you might as well do the return yourself and a computer based software program.
Credentials Count
Look for someone who is an Enrolled Agent. EA, they have take a special exam and are authorized to practice before the IRS. Enrolled Agents are required to meet yearly educational requirements.
An enrolled agent have earned the privilege of representing taxpayers before the Internal Revenue Service by either passing a three-part comprehensive IRS test covering individual and business tax returns, or through experience as a former IRS employee. Enrolled agent status is the highest credential the IRS awards. Individuals who obtain this elite status must adhere to ethical standards and complete 72 hours of continuing education courses every three years.
Enrolled agents, have unlimited practice rights. This means they are unrestricted as to which taxpayers they can represent, what types of tax matters they can handle, and which IRS offices they can represent clients before.
Look for the EA logo
Check for a website or online reviews
While there is no perfect method to verify someone’s qualifications, doing a search online should provide some comfort that the person and company exist. Checking for online reviews and ratings will also help to ensure the person you hire at least meets your criteria.
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