IRS warns consumers about the scourge of 'ghost' tax preparers

Photo (c) ronstik - Getty Images

One question is all it takes to sniff out a rogue

As taxpayers start pulling all their year-end statements, invoices, and 1040 forms together so they can file their 2019 returns, the Internal Revenue Service (IRS) says to be prudent about the legitimacy of whoever you use to do your taxes. Why? “Ghost” tax return preparers.

Ghost preparers do not sign tax returns they prepare. Rather, they simply print out the return and tell the taxpayer to sign it and mail it in themselves. If it’s an e-filed return, the ghost still doesn’t follow protocol and refuses not to digitally sign as the paid preparer.

When that happens, the IRS’ perception is that the return was self-prepared, which keeps the preparer flying under the radar. Tax preparers will sometimes go as far as promising a large refund and charge the taxpayer a preparation fee based on a cut of that return, and that angle is illegal.

Sniffing out the ghosts

The first thing any taxpayer should ask a tax preparer is what their Preparer Tax Identification Number (PTIN) is. A PTIN is the IRS’ way of knowing the preparer is legit. When the IRS doesn’t see a PTIN, they typically flag the return, which could open up a whole other can of worms for the taxpayer.

Here are some other things that ghost tax return preparers may do:

  • They ask to be paid in cash and will not offer a receipt.

  • They cook the books a little, coming up with some faux income so the client qualifies for a tax credit.

  • They claim fake deductions as a way to pump up the amount of the refund.

  • They direct the tax refund to go to their bank account instead of the client’s -- the IRS says some taxpayers gloss over the bank routing number and miss that faux pas altogether.

The IRS and state tax agencies have shown little to no sympathy for taxpayers when they’re ghosted. “‘We can't talk to you, get a POA,’ instead of "What you're doing isn't legal’” is the pushback one ghosted taxpayer wrote about on Reddit when they went to the state asking for help.

Who ‘ya gonna call?

Wanting a larger tax refund is only human nature. But “real” tax preparers know how to find those cherries as much as the “I know a guy” types, and the legit preparers probably know new, Trump-era wrinkles in the tax code that could benefit a taxpayer -- ones that the ghosts are clueless about.

The IRS’ Choosing a Tax Professional has information about tax preparer credentials and qualifications. The IRS Directory of Federal Tax Return Preparers is a quick and easy tool to find tax preparers close to you. Having the satisfaction of knowing the preparer is the real deal can save a taxpayer from the hoops they might have to jump through if things go wrong or if a rogue preparer doesn’t do their due diligence.

Whether it’s being done by Aunt Betty, the guy next door who has an MBA, or a tax preparer that has an office in the mall, review your tax return carefully. If there’s anything there you don’t understand, ask for a clarification -- and what the preparer will do if the IRS (or state) finds issue with a certain entry. As some consumers who have been stung by ghost preparers know, ghosts can be difficult to re-engage with when a return goes wrong.

ConsumerAffairs has prepared a guide on tax preparation companies that are legit and reviewed by more than 8,000 ConsumerAffairs readers. It’s one of those ounce-of-prevention things that could save you from the heartbreak of ghost preparer mistakes and everything else that falls apart when the preparer’s return gets flagged. The guide is available here.

Take a Financial Relief Quiz. Get matched with an Authorized Partner.