Every year hundreds of tax preparation shops sprout up out of nowhere throughout the Chicagoland Area. By April 16th, many have gone the way of the Dodo Bird, never to be heard from again.
The IRS is warning taxpayers about Unprofessional and Illegal Preparers. In their most recent new release, they highlighted these Red Flags that all taxpayers should consider…
Ghost Preparers
This refers to a tax preparer who doesn’t sign the returns they prepare, which is completely illegal. All paid preparers are required to not only sign their work but also provide either their Social Security Number or Preparer Tax Identification Number along with their firm’s information.
There’s a variety of reasons why these Ghost Preparers are afraid to sign a return. Sometimes they’ve been sanctioned and cannot legally prepare one. Other times, they’re doing something illegal on the return and don’t want the crime traced back to them.
Whatever the reason, please stay away from these individuals like the plague that they are.
Year-Round Availability
This should be a minimum requirement. If you get a letter and can’t reach someone because the office is either closed or simply gone, what are you going to do?
Contingency Fees
Again, this practice is completely illegal. Doing returns based on a percentage of a refund gives preparers an incentive to cheat, and has been outlawed for decades.
Any preparer who offers to have your refund deposited into their account who will then cut you a check less their percentage should be reported to the applicable authorities.
Providing Records And Receipts
Any preparer who doesn’t demand the appropriate records and receipts to do a return should be avoided. If they’re simply willing to take your “word” for the more important issues on a return, you’re begging for trouble.
Blank Returns
This seems obvious, but I’ve seen cases where a taxpayers signed a blank return, the preparer did it incorrectly, and the situation turned into a nightmare. You’re talking about your ability to breathe free air. Don’t trust anyone that much.
Review The Return
Make sure to look at the return, ask questions, and get reasonable answers before signing a return. You’re only question shouldn’t be, “How much is my refund?”
This happens more now with the advent of electronic filing. Preparers are supposed to have a signature on file prior to electronically filing your return. If they just file it without you reviewing it and understanding it, you could have some serious problems.
Let me leave you with this.
The most dangerous of these characters is yet to be discussed. They go by the moniker of a…
Neighborhood Magician
IN order to understand this phenomenon, let’s set up a scenario. Joanne B. Owner needs her small business corporation and personal returns completed.
She goes to a newer neighborhood tax office and sits down with a preparer, who asks, “How much money did you make last year?”
Joanne says, “I don’t know”.
The preparers then says, “Okay. No problem. How much money would you like to make?”
This is what we call a Neighborhood Magician. They come with all different qualifications including CPA’s, Attorney’s, Enrolled Agents, and other Unlicensed Tax Preparers.
They do your return and have you sign a liability waiver, releasing them from any liability whatsoever on the returns that they’ve completed. Since they aren’t worried about any problems going forward, they’ll generally put anything you want on a return.
Why are many of these individuals the most dangerous fraudster of all?
What the IRS does to stop these people is audit returns. If the auditor finds evidence that the preparer, “aided in the perpetuation of a fraud”, they’ll refer the case to another unit that goes after bad preparers. That unit will then audit three more of the returns that the preparer did that were similar to the first.
If those returns are also dirty, they’ll then send out audit notices to all of the returns that the preparer completed that year. This will effectively shut down the preparer and probably also the preparer’s firm.
The clients won’t come back and the preparer penalties will be so egregious that the preparer will probably either leave the country or file a bankruptcy. If you get nothing more from this communication then the following, please commit this memory.
Whether or not your return get’s audited has everything to do with who signs it.
If that individual is in anyway shape or form shady, if they’re willing to cut corners, if they don’t demand evidence for the major claims on your return, find someone else. You’re very freedom is at stake.
Choose wisely.
We’re all going to get through this. Let’s get through it together.
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Chris Amundson
President
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