Say the words “tax fraud” and most Americans may think about that $10 deduction they made that they weren’t sure about including. However, with a multi-billion dollar illegal industry at work, the Internal Revenue Service sees tax fraud in a different light and on a scale far beyond the cost of a box of ballpoints. Every year, there are a wide range of scams run by those seeking to redirect refunds or otherwise make money off the returns of everyday tax filers. This year, the IRS started the tax return season warning of the threat of ghost tax return preparers.
Legal Tax Preparation
With the U.S. taxation system as complex as it is, there’s been a need for tax preparation specialists for decades to help the average taxpayer negotiate their 1040 obligation accurately and legally. Currently, legally authorized tax preparers must have a valid 2019 Preparer Tax Identification Number (PTIN) if they prepare or assist in the preparation of someone else’s tax return while charging a fee for this service. They must also sign returns that they prepare and include their PTIN as part of their legal requirement.
“Ghost” tax preparers accept fees to complete your return, but they will neither sign your return nor add their PTIN. Electronic filing, now the most common way to submit returns, also has a workaround for ghost preparers, who can avoid digitally signing your return as the preparer. While a ghost preparer could be an otherwise honest person moonlighting at tax time, you have no assurances of this, or that they have the knowledge and expertise to properly prepare your return. Unscrupulous ghost preparers can make claims of high refunds that may not be accurate.
Recognizing Ghost Preparers
The “too good to be true” axiom applies here. If a tax preparer claims that they can get you a bigger refund than other preparers, something isn’t right, particularly if they haven’t yet reviewed your information. It’s common for these scammers to justify higher preparation fees by referring to their special knowledge that will earn you a bigger return, when in fact, they are out to take your money, make a minimum of effort, then disappear until next tax season.
Other signs of fraudulent tax preparers may be:
-Those who direct your refund to their bank accounts rather than yours for “procedural” or “administrative” reasons
-Preparers who lead you through questionable claims of income or deductions so that you appear to qualify for credits you otherwise would not
-Tax preparers who insist on cash payment and who do not issue receipts
Finding a Legitimate Tax Preparer
A current PTIN number is just the start of finding a reputable tax preparer. The lowest level of authorized tax preparer will have a PTIN, but no other tax practice rights. They can’t represent you before the IRS and may not have any special training or qualifications for tax preparation. If you’re choosing someone who is moonlighting as a tax preparer and you’re comfortable with this, they will have a PTIN and will sign your return in accordance with tax preparation law.
Other preparers with limited representation rights include seasonal tax preparers who don’t have professional credentials, but who do participate in the Annual Filing Season Program. The IRS certifies completion of the program for those who meet a minimum number of continuing education hours for each tax year.
Unlimited representation rights are extended to certified public accountants, tax lawyers and enrolled tax agents. These are tax experts with specialized training, and they can represent you before the IRS in any matter pertaining to a tax return that they prepared for you. The IRS maintains a public directory of these tax professionals and you can access it through this website.