At a Glance
Tax preparer scams are common
“A while back, I decided to hire a tax preparer for the first time because my work schedule had been hectic, and I didn’t have time to file my tax returns. Since my budget was a little tight that month, I decided to look for a cheap tax preparer online, and I found one using a popular freelancer website,” shares Sara Graves, the co-founder of USTitleLoans, a loan brokerage company specializing in helping car owners get peer-to-peer loans.
The tax preparer asked Graves to pre-pay him for his services and said he would complete the task within a week. “I paid the freelancer $110 and provided him with the necessary tax documents and information. About eight days later, I reached out to check on the progress, but the freelancer was nowhere to be found,” she adds.
“That’s when I realized I had been swindled. I never heard from the freelancer again, and I had to hire a different tax preparer to handle my taxes. Additionally, I had to subscribe to a data breach protection service to ensure my personal information wasn’t used fraudulently.”
Those scenarios are common, especially when the deadline for tax returns is near. Sadly, they also tend to target lower-income individuals sending them right into debt. “I’m a licensed CPA who’s volunteered as a VITA tax preparer in the past. The program, focused on helping low-income individuals prepare and file tax returns for free, was an eye-opening experience, as I heard horror stories from people I assisted after having gone to sketchy tax preparers prior,” shares Riley Adams, founder of The Young and the Invested, a financial literacy platform.
Tax preparer red flags
Here are three major red flags to look out for when hiring a tax preparer.
Their price is low and they charge you upfront
“I discovered that being cheap when looking for someone to do your tax returns can become an expensive affair,” says Graves. That’s not to say all tax preparers with competitive pricing are scammers, but just be aware that what can look like a bargain at first can end up costing your peace of mind.
Do your research – and keep in mind that being licensed as an Enrolled Agent, CPA or Tax Attorney does not necessarily mean that you can blindly trust a tax preparer, says Adams.
“Consider looking up reviews on the Better Business Bureau, Yelp, or other comparison rating sites. You can ask about their active affiliations with professional organizations, as these often hold tax preparers to a code of ethics,” he adds.
Also, sketchy tax preparers tend to charge you upfront, then pull a disappearing act. To play it safe, don’t hire anyone who wants to charge you money before delivering the work.
They promise you a huge tax refund
If you’ve been told you’re likely to receive a much larger than expected tax refund, if a tax preparer promises you a way bigger refund than other professionals, or if a tax preparer assesses their fee based on a percentage of the amount you receive from the IRS, run.
“Understand your tax situation prior to meeting with someone,” recommends Adams. Estimate the maximum tax credits you would be eligible for, and compare your numbers with the estimates of the tax preparer. If the numbers don’t match at all, it’s a red flag.
You’ll want to look for a tax preparer with a fixed fee – not a variable one based on your tax refund. This can be a sign that the tax preparer is going to submit incorrect information on your behalf, which basically is tax fraud. “Under this arrangement, they’re incentivized to get you the biggest refund possible, as it results in them getting paid more. Under a fixed fee model, they’re paid to get your return correct, not the biggest refund possible,” says Adam.
They refuse to sign returns
Finally, beware of “ghost” tax preparers who refuse to sign returns. “Like a ghost, they try to be invisible to the fact they’ve prepared the return and will print the return and get the taxpayer to sign and mail it. For e-filed returns, the ghost preparer will prepare but refuse to digitally sign it as the paid preparer,” according to the IRS.
By law, anyone who is paid to prepare or assists in preparing federal tax returns has to have a valid PTIN (Preparer Tax Identification Number) and include it on the signed return. If they don’t, it’s a huge red flag that you are dealing with a scammer.
If you did get scammed during tax season and find yourself having to pay off debts try debt consolidation to more efficiently plan your debt-payoff journey.