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How to Avoid Tax Preparer Fraud

If they get it wrong, you pay the penalty 

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Dateline: Tax Time

As the federal income tax season gets into full swing, the IRS warns taxpayers to beware of falling victim to paid income tax preparers who file fraudulent tax returns on behalf of their customers.

Return Preparer Fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.

In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns. However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution.

The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution and/or asserting appropriate civil penalties against unscrupulous return preparers.

While most preparers provide excellent service to their clients, the IRS urges taxpayers to be very careful when choosing a tax preparer. You should be as careful as you would in choosing a doctor or a lawyer. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.

Helpful Hints When Choosing a Return Preparer

  • Avoid tax preparers who claim they can obtain larger refunds than other preparers.

  • Avoid preparers who base their fee on a percentage of the amount of the refund.

  • Use a reputable tax professional who signs your tax return and provides you with a copy for your records.

  • Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.

  • Review your return before you sign it and ask questions on entries you don't understand.

  • No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return.

  • Therefore, never sign a blank tax form. Find out the person’s credentials.

  • Is he or she an Accredited Tax Preparer, Enrolled Agent, Certified Public Accountant (CPA), Licensed Public Account or Tax Attorney?

  • Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals.

  • Other return preparers may only represent taxpayers for audits.

  • Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

  • Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?

    IRS cautions taxpayers to be wary of claims by preparers offering larger refunds than other preparers. Check it out with a trusted tax professional or the IRS before getting involved.

    Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.

    Where Do You Report Suspected Tax Fraud Activity?

    If you suspect tax fraud or know of an abusive return preparer, you should report this activity to your nearest IRS office. This information can be communicated in writing or by phone. You can contact the IRS by phone at 1-800-829-0433.

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