With no one to regulate them, tax preparers are making their own rules—Don’t be the one to pay for their mistakes:
Welcome to the Wild, Wild West, where honest, tax-paying citizens are hoodwinked for a quick buck and then hung-out to dry. This tax-season, an estimated 60% of the 140 million tax-filers will employ the help of a professional preparer, according to the Internal Revenue Service. While for many, this may seem like the best way to get the most from their return, recent investigations are discovering that paid preparers are responsible for a vast majority of the IRS’s headaches. In fact, Tax Preparer Fraud ranked third on the IRS’s list of top 12 scams this year. This is due to the many professionals who are entrusted with millions of returns each year, and who don’t feel any qualms about short-changing their customers on refunds or preparing fraudulent returns—just to gain some extra pocket change.
Unfortunately, though the IRS is doing everything in their power to protect the taxpayer, the only ones who will be protected this tax-season—and who will remain unscathed from the backlash of the scams—are the preparers themselves. As it stands now, taxes are an individual’s responsibility, and if fraud occurs at the hands of somebody else, the taxpayer is still liable, which means that the innocent will be the ones to pay.
So, how do you know if you’re the victim of tax-fraud? And if you are, what can you do about it?
For starters, be weary of a too-big refund. I know many of you don’t want to hear this, but if a refund is too big, it generally indicates that something went awry during filing. Oftentimes, deductions were too large, dependents were unjustified or incomes falsified. Though your preparer could have made these errors in innocence, more often than not, mistakes such as these are made intentionally. Many preparers demand a generous portion of the filer’s refund, and the larger the refund, the bigger the paycheck. This is illegal, but with no one to regulate their actions, tax-preparers get away with it time and time again.
If you suspect that your refund is much more than you paid in taxes last year, seek the second opinion of another professional. Though it might take them years to get to your case, chances are good that the IRS will come after you for their money, and what it might cost you to get a second opinion won’t be near as much as what you will owe the IRS should they determine you’re worth an investigation.
Too little a refund is also a sign of tax-preparer fraud. Private investigators have been turning up evidence of professional preparers shorting filers on their refunds and keeping the remaining balance for themselves. The tax-preparer is ultimately responsible for what information is entered on the return, and the tax formula is so complicated that the normal, everyday person wouldn’t know what to look for on an ill-prepared return even if they wanted to double check it—which they don’t, because most people trust their tax-preparer.
Unfortunately, trusting your tax-preparer can be a mistake. Because they have so much control – and because many individuals are blissfully ignorant of the way the tax-system works – preparers have worked out a seemingly foul-proof way to scam the average worker out of their hard earned cash.
The tax-preparer gets the client to sign a fake or incomplete return, one that shows a refund amount of only a few hundred dollars. Though the amount is a lot smaller than they expected, the disheartened filer shrugs his or her shoulders, signs on the dotted line and pays the preparer a small fee for their services. The preparer tells the filer they’ll call when the refund is in, and the filer leaves feeling duped—not by the preparer, but by the government.
Meanwhile, the preparer completes the real return—which shows a refund of a couple thousand—sends it in to the IRS and receives the full refund, which they keep. To keep up appearances, they send a couple hundred to the filer, who is none the wiser, and everybody is happy.
There are a few ways you can keep a situation like this from happening to you. First of all, don’t ever sign an incomplete return. If you notice that some lines are empty, or that the numbers don’t match the numbers you gave the preparer, question them. These are you taxes, and this is your money – you have a right to ask as many questions and demand as many answers as you please. Secondly, don’t ever agree to have the return sent to your preparer. Doing so is not a common custom, and any preparer that says so is hiding something. Lastly, just be smart. If a tax-preparer seems unprofessional, is quick to get you in and out of the door, demands a fee, or can’t seem to answer any of your questions—walk away. The headache of trying to find a legitimate tax-preparer is nothing when compared to the headache of having to deal with the IRS after an ill-prepared return.
What the IRS is doing to prevent tax-preparer fraud:
Last year, the IRS was pushing for a law that would crack down on professional preparers, and therefore, eradicate fraud and abuse in tax return filing. They proposed the following:
- All paid preparers will be required to register with the IRS and obtain an identification number. These preparers would be subject to a compliance check to ensure that all returns are being filed correctly, and that the taxes due will be paid on time.
- All paid tax preparers will be required to take a competency test.
- They will be required to receive on-going professional education.
- All ethical rules that apply to attorneys, CPAs and EAs will apply to paid preparers as well.
However, the case was shot down at the beginning of this year; but with rising fraud, it looks like something will need to be done here in the very near future.
If you suspect you’ve been a victim of tax fraud, or if you want to avoid the possibility altogether, visit me at IRS All-Star, where we value nothing more than our relationship with you, and where we pride ourselves on being ethical through and through. http://www.irsallstar.com