At a Glance
In a world where the tax season can be scarier than a haunted house, it’s essential to keep your wits about you. While most tax preparers are legitimate professionals, there’s a dark and shadowy underworld of “ghost” preparers lurking in the financial shadows. These spectral figures might not wear sheets, but they sure know how to make your financial scamming nightmares come true. So, grab your proton pack and join us as we delve into the spine-tingling world of common tax preparer horror stories, where the only thing more terrifying than owing the IRS is trusting the wrong tax expert and getting scammed. The good news is there are common red flags to look out for and avoid, and ways you can ensure your tax preparer is legit. Read on to learn more.
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.
Tips to choose a tax preparer
When choosing someone to prepare your taxes, there are a few things to keep in mind:
1. Check their qualifications and history. New regulations require all paid tax return preparers to have a Preparer Tax Identification Number (PTIN). Make sure the preparer has and can provide one of these. Additionally, ask if they are affiliated with a professional organization and/or attend continuing education classes to ensure they are up to date on all rules and regulations related to taxes.
You can also check the Better Business Bureau (BBB) for any disciplinary actions and licensure status through state boards of accountancy for certified public accountants, the state bar associations for attorneys, and the IRS Office of Enrollment for enrolled agents.
2. Ask about service fees. Avoid tax preparers who base their fee on a percentage of your refund (and those who claim they can get a larger refund than other preparers). Make sure any refund due is sent to you or deposited into your account. It should never be deposited into the preparer’s account.
3. Check for electronic filing. Any paid preparer who prepares and files more than 10 returns for clients must file them electronically (unless the client chooses a paper return). Ensure the preparer offers an IRS e-file.
4. Make sure they are accessible. You should be able to easily contact your tax preparer before, during, and after the return has been filed in case you have any questions.
To help make the process even smoother for you, additional tips include:
- Provide all records, receipts, and other information upfront. Reputable preparers will request to see all records, receipts, and information and ask a variety of questions to determine your total income, qualifications for expenses and deductions, and more. Avoid preparers who don’t require this information, or who are willing to file your return before receiving the proper forms and information.
- Never sign a blank return. Avoid any preparer asking you to do this.
- Always review your return before singing it. Ask any questions you may have. You should understand it and feel comfortable with its accuracy.
You can go to IRS.gov and search for “Directory of Federal Tax Return Preparers.” Your tax preparer should be on this list. You can also contact the State Board of Accountancy where the individual obtained their license, or you can use the NASBA CPA Verify tool.
If your tax preparer lied on your taxes, you will receive a notice from the IRS about a problem with your return and they will conduct an investigation. If it finds the lie was intentional, it could rescind the tax preparer’s identification number. Licensed preparers may also face action from their state’s regulatory body. In some cases, you may have to go to court to get relief from the costs of the error, but this should be your last resort.