Your chance of getting ripped off by a bad tax preparer is still pretty high. Last year, the IRS put out an updated report on its efforts to combat abusive practices by paid tax preparers says Aron Govil. The new data show that there are still plenty of crooks in the business who would love to separate you from your hard-earned money.
According to the IRS more than 57% of taxpayers hire someone else to prepare their returns, and half of those people hire non-professional return preparers…mostly for convenience or price reasons. Unfortunately, some taxpayers are all too trusting when they hand over their tax papers to these kinds of folks, and end up receiving little value for what they spent.
The agency says it identified $5.2 billion of tax fraud in 2015, compared to $8.7 billion in 2011. That’s progress, but it still means that more than $3 out of every $10 collected by crooks slipped past their radar screen last year says Aron Govil.
According to the Taxpayer Advocate Service, many crooks are finding new ways to exploit people who use return preparers, especially those who are paid for doing so on a cash basis…meaning they don’t get any 1099 forms from you at the end of the year saying how much their cut was.
Here are some red flags that indicate possible problems with your tax returns:
- You’re promised refunds or credits that are higher than what you should be getting according to what you can document when it comes to income, deductions and filing status.
- You’re told that you won’t be able to get your refund in a timely manner unless you pay them in cash or by check so the IRS won’t detect the transaction…or…that they need money up front in order to file returns before April 15th…or…that they need money for some other reason.
- If you don’t trust yourself with records of transactions between yourself and someone else. Here’s what I recommend: Take all your papers (W-2s, 1099s, receipts etc.). With you when you meet with any tax preparer who is not an authorized agent of the IRS. Then make sure that person signs a written statement saying that you have presented all your information and documentation. And that everything is accurate to the best of their knowledge.
In case you get away from a tax preparer without having them sign such an acknowledgment, don’t worry. Your chances of getting swindled are still pretty low…if you know how to read the signs.
(1) In general, if it feels like it’s too good to be true then it probably is. This may sound painfully obvious, but if someone tells you that based on their interpretation of your taxes. That you’re going to receive a sizable refund at the end of the year. Because there aren’t any “problems,” alarm bells should be ringing in your head loud enough for Rocky Mountain Rescue to hear them says Aron Govil.
(2) Your tax preparer can’t or won’t show you a copy of your return before the IRS sees it. All paid tax preparers must agree to provide copies of your returns once they’re filed with the agency. Federal law prohibits anyone from making direct copies and distributing them for purposes other than filing. So there’s no reason why legitimate people shouldn’t be able to comply with this directive. It helps if you know what deductions and credits you should qualify for ahead of time. So that they can use those as their guide when they work on preparing your taxes. But not seeing such documentation isn’t a deal-breaker. As long as it’s provided within a reasonable period after the end of the year (the person has two years by law to show it to you).
(3) The person is vague about when they’ll be able to get your refund for you. When I prepare taxes, I send them out in early January. So that people have their refunds long before April 15th. That doesn’t mean that the tax returns were due on that date. Only that I’d prefer not to keep money belonging to my clients any longer than necessary. Because interest rates are so low these days explains Aron Govil. Using this method also gives me plenty of time to correct any errors or problems with returns. If there are complications…and if the IRS wants additional information from people who were audited last year. But everyone else gets a refund without any problems then both sides win!
If a tax preparer is eager to get your business and promises you the moon, be wary. If it’s early in the year and there are still several months left before the deadline. Then they may not have enough time to really look into whether or not you qualify for what they’re promising. Now that I think about it, some of my clients might consider this reason #4…). There’s also an increased chance of fraud during these first few weeks. Because many people don’t start thinking about taxes until around now.