Well, hello, 2020! Right now, millions are heading back to work in the new decade after weeks of holiday splendor. That means one thing—W-2s are coming! Tax return preparers are also heading back to work, prepping for a busy season of tax filings. More than three-quarter of a million people are registered as tax preparers with the IRS, meaning they hold a Preparer Tax Identification Number (PTIN). But not every tax preparer is on the up-and-up. Along with these legitimate services, scammers are also busy at work, gearing up to take advantage of tax filers.
‘Ghost’ preparers, the IRS says, are preparers who use shady practices to take advantage of tax filers. They are usually not properly licensed as is required by the IRS of anyone who is paid to complete or assist in the completion of someone else’s tax return.
Dishonest tax preparers may also:
- Promise a big refund.
- Charge fees based on the refund size.
- Require payment in cash only and will not provide a receipt.
- Invent income to erroneously qualify their clients for tax credits or claim fake deductions to boost their refunds.
- Direct refunds into their own bank account rather than the taxpayer’s.
Perhaps one of the scariest aspects of ghost filers is that if the IRS has issues with your return and you need help to handle it, the ghost filer has, well, ghosted! They’re nowhere to be found, and you could be on the hook for any errors and omissions in your return.
If you’re one of the 56% of Americans who use tax preparation services, the IRS has suggestions for making sure the service you use is trustworthy.
- Ask if the preparer has an IRS Preparer Tax Identification Number (PTIN). Paid tax return preparers are required to register with the IRS, have a PTIN and include it on tax returns.
- Inquire whether the tax return preparer has a professional credential (enrolled agent, certified public accountant or attorney), belongs to a professional organization or attends continuing education classes. Tax law can be complex. A competent tax professional needs to be up-to-date in these matters. The IRS website has more information regarding the national tax professional organizations.
- Check the preparer’s qualifications. Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This tool can help locate a tax return preparer with the preferred qualifications.
The Directory is a searchable and sortable listing of tax preparers registered with the IRS. It includes the name, city, state and zip code of:
- Enrolled Agents
- Enrolled Retirement Plan Agents
- Enrolled Actuaries
- Annual Filing Season Program participants
- Check the preparer’s history. Ask the Better Business Bureau about the preparer. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to IRS.gov and search for “verify enrolled agent status” or check the Directory.
- Ask about service fees. Avoid preparers who base fees on a percentage of their client’s refund or boast bigger refunds than their competition. Don’t give tax documents, Social Security numbers or other information to a preparer when only inquiring about their services and fees. Unfortunately, some preparers have improperly filed returns without the taxpayer’s permission once the records were obtained.
- Make sure the preparer offers IRS e-file and ask to e-file the tax return. Paid preparers who do taxes for more than 10 clients generally must file electronically. The IRS has processed more than 1.5 billion e-filed tax returns. It’s the safest and most accurate way to file a return.
- Provide records and receipts. Good preparers will ask to see tax records and receipts. They’ll ask questions to determine the client’s total income, deductions, tax credits and other items. Do not rely on a preparer who is willing to e-file a return using a pay stub instead of a Form W-2. This is against IRS e-file rules.
- Understand representation rules. Attorneys, CPAs and enrolled agents can represent any client before the IRS in any situation. Annual Filing Season Program participants may represent taxpayers in limited situations if they prepared and signed the return. However, non-credentialed preparers who do not participate in the Annual Filing Season Program may only represent clients before the IRS on returns they prepared and signed on or before Dec. 31, 2015.
- Never sign a blank return. Don’t use a tax preparer that asks clients to sign an incomplete or blank tax form.
- Review the tax return before signing. Before a taxpayer signs a return, they should review it and ask questions if something is not clear. Taxpayers should ensure they are comfortable with the accuracy of the return and that the refund goes directly to them – not into the preparer’s bank account. Reviewing the routing and bank account number on the completed return is always a good idea.
Report abusive tax preparers to the IRS. Taxpayers can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If a return preparer is suspected of filing or changing the return without the client’s consent, also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. Forms are available on IRS.gov.
Learn more about your tax filing options and why it’s a good idea to file early!