Don't Let Tax Preparer Talk You Into Anything Shady

Most professional tax preparers are honest and conscientious, trying to get the best results for their clients. If you have used the same preparer for several years, you probably have a degree of confidence in their ability and integrity.

Unfortunately, some tax preparers commit fraud, getting themselves and their clients in trouble. Even though you have paid a tax professional to prepare your return, you are ultimately responsible for its contents.

Possible penalties and prosecution

"In some situations, the client (taxpayer) may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns," the Internal Revenue Service (IRS) says on its website. "However, when the IRS detects the false return, the taxpayer must pay the additional taxes and interest and may be subject to penalties and criminal prosecution."

The point was made recently when the U.S. Justice Department filed six lawsuits against tax preparers in five states, charging them with fraudulently claim the first-time homebuyer tax credit and the Earned Income Tax Credit on returns. At the same time, a federal grand jury indicted a Philadelphia man on criminal charges for fraudulently claiming the first time homebuyer credit.

"We are working hard to ensure that those who try to cheat our country by filing phony claims for tax credits do not get away with it," said John A. DiCicco, Acting Assistant Attorney General of the Justice Department's Tax Division. "Honest taxpayers will be pleased to see the Internal Revenue Service and the Justice Department continuing to investigate, prevent, and prosecute these types of schemes during the 2011 tax filing season. False claim cases are certainly a nationwide priority for the Tax Division. This kind of tax fraud is an insult to hard-working Americans who legitimately qualify for these tax credits."

Clients get close scrutiny

A federal court in North Carolina, meanwhile, has permanently barred Jody S. Ball of Bryson City, N.C., from preparing federal income tax returns for others. And Ball's former clients may come under close scrutiny as a result. The order requires Ball to provide the government with a list of all persons for whom she prepared federal tax returns since January 2007 and to send each person a copy of the court's order.

According to the government's complaint, Ball, doing business as The Tax Lady Inc. and Jody Ball Accounting, included false claims for charitable donation deductions, business expense deductions and earned income tax credits on tax returns that she and her businesses prepared.

Even after the Internal Revenue Service (IRS) imposed penalties on Ball in 2004, she allegedly prepared more than 1,600 federal income tax returns during and after 2006. According to the complaint, of those returns that the IRS audited, approximately 80 percent understated customers' tax liabilities. 

All the more reason to check references, and maybe do a Google search, when using a tax preparer for the first time. How do you avoid a tax preparer who may not be on the up and up? The IRS offers these tips:

Advice

• Avoid tax preparers who claim they can obtain larger refunds than other preparers

• 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 for your records.

• Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.

• Review your return before you sign it and ask questions on entries you don't understand.

• No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.

• Find out the person's credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared. (Additional text in italics added Feb. 4, 2005.)

• 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.

• Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?

The IRS cautions taxpayers to be wary of claims by preparers offering larger refunds than other preparers. Check it out with a trusted tax professional or the IRS before getting involved.