January 7, 2014

According to the IRS, about 60 percent of taxpayers use tax professionals each year. While most are honest and well-trained, this is an area ripe for fraud if you choose poorly. After all, getting your taxes done by someone else means handing over a lot of personal information, your Social Security number (the Holy Grail for thieves), and those of your spouse and dependents, possibly your birth date, and your bank account information. The IRS wants you to remember, even if you hire someone to do your taxes, you bear the responsibility for what is in your return.

Until recently, anyone could hang out a shingle calling themselves a tax/financial professional, with zero experience or qualifications.  That’s why the IRS now requires tax preparers to get an IRS-issued Preparer Tax Identification Number (PTIN).  This helps, but where thieves smell money, there will always be unscrupulous people who slither past the rules. No determined thief is going to let a little thing like an IRS requirement stop him or her from scamming you.

But it’s not too difficult nowadays to spot a shady tax preparer and avoid them altogether.

Here are three red flags the IRS wants you to watch for:

  1. Is the preparer willing to provide you with his or her PTIN?
  2. Is the preparer willing to sign your return and provide his/her PTIN?
  3. Will the preparer ask you to sign an incomplete return? The IRS warns, a reputable preparer will never do this.

If the answers to any of these questions are unsatisfactory, don’t walk away. Run!

Others Points to Watch For

Ask the preparer about his or her qualifications.

  • Where did you get your training, and have you stayed up with the tax changes through continuing education?
  • How long have you been doing this?
  • What professional groups do you belong to?

Get a full list of the fees you will pay.

  • A reputable preparer will be upfront about fees.  You need to be upfront too, by explaining the extent of your return. If you have multiple small businesses, special credits which require extra forms, or a fistful of W-2s, say so.
  • Your fee should never be a percentage of your expected refund.  That encourages unscrupulous preparers to fraudulently jack up your refund. The preparer may initiate the fraud, but again, you are ultimately responsible and will be left holding the bag.
  • What is the expected time frame till your return is done?
  • Will the preparer review the completed return with you?
  • Will he/she be available for questions after the tax season?
  • If you are due a refund, will it be issued in your name?  Beware a preparer who says the refund will be issued to him/her, and you will be paid in cash. There’s no way for you to know if the refund was actually much larger than what you are paid.  If it’s a cash-only set up, say no and find another preparer.

Your prospective tax preparer needs to pass your inspection. If you feel uncomfortable during the initial meeting, trust your instincts and go elsewhere. You can do a simple background check of a preparer by contacting your local Better Business Bureau. If you have doubts, check the standing of a CPA by contacting the state board of accountancy. For attorneys, contact your state bar association, and for Enrolled Agents, check with the IRS Office of Enrollment.

You can read more about how to spot a shady tax preparer by checking with the IRS. If you feel you have stumbled upon a bad apple tax preparer, you can report the individual with the IRS by clicking here.

“If you feel that you have been a victim of a bad tax preparer or you feel that the IRS may flag a return you filed for inaccuracies, you may want to contact a professional to review your situation,” says David King, President of Optima Tax Relief. “Remember, the IRS is much more accommodating to individuals/businesses that voluntarily amend a past return as opposed to them amending it themselves.”

Photo: Commercial Appeal