With the tax season back, so are tax preparer fraudsters.
While many trustworthy and honest tax preparers are willing to help you complete your tax returns, it’s still good to be cautious, especially when you want to protect your identity.
Here’s how to avoid tax preparer fraud and what to look for when choosing a tax preparer this season.
What is Tax Preparer Fraud, and How Does it Work?
Tax preparer fraud is filing false income or other tax information by tax preparers. They can claim inflated expenses, deductions, or credits for their clients. They can also claim false exemptions and returns and manipulate incomes for their clients to obtain tax credits they might not normally receive.
Often, the taxpayer can be unaware of this situation yet are subject to all penalties — not the preparer. If not caught on time, this can cause immense debt and penalties for the taxpayer.
Tips for Choosing the Right Tax Professional
When finding the right tax professional for you, looking into who they are and if they would best suit your needs is beneficial. This individual knows your private and personal details – your income, financial information, marriage status and domestic situation.
The Internal Revenue Service, or IRS, has provided its most helpful tips when choosing the right tax preparer for you:
- Be mindful of tax preparers who claim or boast about the large refunds they can obtain.
- 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.
- Make sure the tax professional can answer all tax return-related questions.
- Review your return before you sign it.
- Remember, whoever prepares your tax return is solely responsible for all information.
- Never sign a blank tax form.
- Check the tax preparer’s credentials.
Four Types of Tax Professionals
There are four types of tax professionals: certified public accountants, enrolled agents, tax attorneys and non-credentialed preparers. Here’s a breakdown of the differences between them.
Certified Public Accountants
Certified public accountants, also known as CPAs, are licensed by their respective state. The state board of accountancy requires a CPA to pass the Uniform Certified Public Accountant Exam.
These professionals, once licensed, offer their accounting services to public individuals. CPAs are required to continue their education, depending on their state.
Enrolled Agents
Enrolled agents, also known as EA, are trained, and licensed by the IRS and must pass the Special Enrollment Exam. In addition, they are trained in federal taxes and granted the right to represent any client.
Licensed EAs are required to complete 16 hours of education per year and 72 hours over three years.
Tax Attorneys
A tax attorney is licensed in the state to practice law and granted the right to represent any client before the IRS. Tax attorneys apply their knowledge to tax preparation, planning and providing advice and plans to clients.
Non-Credentialed Preparers
Non-credentialed preparers typically are seasonal tax preparers without any certifications from the IRS. Tax preparers who are not credentialed can often work in a tax store or are a part of the IRS Volunteer Income Tax Assistance Program.
What to Do If You’re a Victim of Tax Preparer Fraud?
If you think you are the victim of tax preparer fraud, complete the IRS form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit. You must mail the form along with other supporting documents. For more information, visit IRS.gov.
You may also want to get in touch with your bank. A fraudster can use your Social Security number and other personal information to open credit cards and other accounts without your knowledge.
For extra protection, consider a monitoring service, such as IdentityIQ, that can quickly alert you of possible suspicious activity and assist you in restoring your identity. These services are dedicated to protecting you from fraudsters.