I have received several emails regarding my column on tax fraud. Many had questions about choosing a tax preparer they could trust.
Thus, I’m recapping important tips by the Internal Revenue Service on hiring a tax preparer so you don’t get caught in a tax-fraud scheme.
Tax fraud can involve preparers filing false income-tax returns for their clients by claiming inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions. Preparers might, for example, manipulate income figures to fraudulently obtain tax credits such as the Earned Income Tax Credit.
Why would someone do this? They might set their fee based on a percentage of the refund. The higher the refund, the more they would get paid. (See tip below on avoiding preparers who charge a percentage, rather than a flat fee.)
In some situations, the client, or taxpayer, might not know of the false expenses, deductions, exemptions and/or credits shown on his or her tax return.
However, when the IRS detects a fraudulent return, the taxpayer — not the return preparer — must pay the additional taxes and interest and could be subject to penalties.
While most preparers provide honest services to clients, the IRS urges taxpayers to be careful when choosing a preparer — as careful as they would be choosing a doctor or lawyer. Even if someone else prepares a tax return, the taxpayer is ultimately responsible for all the information on the return.
For that reason, taxpayers should never sign a blank tax form. And they should review the return before signing it and ask questions on entries they don’t understand.
Also, the IRS suggests that taxpayers:
▪ Be cautious of preparers who claim they can obtain larger refunds than other preparers.
▪ Avoid preparers who base their fee on a percentage of the refund.
▪ Use a reputable tax professional who signs the tax return and provides a copy.
▪ Consider whether the individual or firm will be around to answer questions about the tax return months or even years after it has been filed.
▪ Check the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collections and appeals. Other return preparers can only represent taxpayers for audits of returns they actually prepared.
▪ 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.
Reputable preparers will ask to see receipts and will ask questions to determine whether expenses, deductions and other items qualify.
If you suspect any kind of fraud, call 800-829-3676 or visit the IRS web site at http://www.irs.gov/.
Carmen Caldwell is executive director of Citizens’ Crime Watch of Miami-Dade. Send feedback and news for this column to firstname.lastname@example.org, or call her at 305-470-1670.