Tempted to hire a tax preparer who promises — even guarantees — a fat refund?
In some cases, he filed returns that included a deduction for mortgage interest — except the clients didn’t own a home. One of those returns falsely claimed $30,488 in itemized deductions, including for mortgage interest. The taxpayer received a refund for $7,318.
Hansack filed more than 2,500 returns with false deductions. In all, the Justice Department said, his dishonesty resulted in the loss of more than $3 million in taxes owed to the IRS. He is looking at prison time at his scheduled sentencing in May and has agreed to pay a $50,000 fine and never work in the tax preparation profession again.
“It’s important for taxpayers to be vigilant and, if possible, double-check their preparer’s work just to make sure that refund isn’t too good to be true,” said Ciaran McEvoy, a spokesman for the U.S. attorney’s office in Los Angeles.
The IRS has plenty of other examples of investigations that have led to prosecution and sentences for tax-prep fraud and abuse. Just last month, a North Carolina man pleaded guilty to preparing false tax returns to inflate client refunds.
Even if you are not complicit in the crime, you do not want to have to tangle with the IRS to prove your innocence or pay back a refund you didn’t deserve, said National Taxpayer Advocate Erin M. Collins.
“You don’t want to be that person,” Collins said. “Usually, you have to go to the police and you have to file a report. It’s a very painful process. At all costs, you want to avoid that.”
Here are seven red flags to protect yourself from a fraudulent tax preparer.
1. They don’t have a preparer tax identification number
By law, anyone who is paid to prepare or assist in preparing your tax return must have a valid preparer tax identification number, or PTIN, according to the IRS.
“Not signing a return is a red flag that the paid preparer may be looking to make a fast buck by promising a big refund or charging fees based on the size of the refund,” the IRS says.
Here’s something else. Preparers who won’t sign your tax return may be trying to “ghost” you.
“That’s a red flag,” Collins said. “That means the preparer doesn’t want the IRS to know they’re working on that return. ”
If this happens, “Stand up, say thank you and walk out the door,” she said.
Or the person may have plans to alter that return before they electronically file it, Collins said.
To check — and you should — that your preparer is legit, go to irs.gov and search for “Directory of Federal Tax Return Preparers.”
The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs offer free tax help for qualified individuals. To find a VITA or TCE site near you, call 800-906-9887. You can also go to irs.gov and search for “Find a Location for Free Tax Help.”
2. You’re not asked to prove deductions or are goaded to cheat
A good preparer will ask to see your records and receipts.
In a Boise, Idaho, case, a tax preparer was found guilty last month of counseling his clients to include ineligible dependents on their tax returns to boost their refunds. This, in turn, falsely suggested the clients were eligible for lucrative credits, including the earned-income tax credit.
You should never agree to any false deductions, no matter how desperate you are for a larger refund.
3. You are asked to sign a blank or partially filled-out tax return
Doing your taxes involves a seemingly endless list of boxes and lines. So it may sound reasonable if your tax preparer says, “This is going to take a lot of time, so just sign your return and I’ll fill in the rest of the information later.”
Don’t do it.
No matter who prepares your taxes — whether it’s a large tax software company, a trusted accountant or a fraudster — you are ultimately responsible for what is on the return.
“You should always request a signed copy of that return before you walk out the door,” Collins said.
If the return is electronically filed, get a copy and ask for proof it was submitted.
4. You are not given a copy of your return
If the IRS discovers the tax preparer changed your return’s information — possibly inflating deductions to collect a larger preparation fee — your unaltered copy can prove you weren’t involved.
5. The tax preparation fee is based on a percentage of your refund
This can give a preparer incentive to claim false deductions or credits or inflate real ones.
“At the end of the day, potentially, you’re going to be responsible for paying those, you know, that money back,” Collins said.
You may also be subject to a 20 percent accuracy-related penalty, which is assessed if you underpay the tax you owe.
6. Your preparer promises a large refund
Huge red flag. A preparer can’t guarantee a certain refund amount without knowing your tax situation.
7. The preparer directs your refund to a bank account you don’t control
There are products offered by tax preparation companies that will give you an advance on your refund. These short-term loans are secured by your expected refund.
That’s not what I’m talking about. You want to steer clear of a preparer who wants you to have the IRS deposit your refund in a bank account that you don’t control.
Here’s why. The person may fill out your return and tell you that you’ll be getting a refund of $500. But they altered the information boosting the refund to, let’s say, $2,000. They send you the $500 and keep the balance, Collins said.
If any of these red flags hit home, report the preparer to the IRS using Form 14157 (Return Preparer Complaint) or Form 14157-A (Tax Return Preparer Fraud or Misconduct Affidavit).
Don’t be fooled or defrauded. Be careful in choosing a tax preparer, or you may end up in a hot mess with the IRS.
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