Tax Preparer Fraud

What is Tax Preparer Fraud?

The preparation and filing of false income tax returns by preparers who manipulate income to claim otherwise unavailable tax credits, or claim inflated personal or business expenses, false deductions, unallowable credits, or excessive exemptions on returns prepared for their clients is considered fraud.

Tax preparers can set their fee based on a percentage of the refund the taxpayer is supposed to receive. The higher the refund the taxpayer receives, the more the tax preparer gets paid. Fraudulent preparers falsify tax returns to generate a higher refund and therefore a higher fee.

Choosing a Tax Preparer

Choose carefully when hiring a tax preparer. Try to avoid:

• Tax preparers who claim they can obtain larger refunds than other preparers.
• Tax preparers who base their fee on a percentage of the amount of the refund.
• Tax Refund Anticipation Loans known also as “Rapid Refunds".
• Seasonal tax preparers; hire a tax preparer who is going to be available to answer questions if you get audited by the IRS.
• Paid tax preparers with no credentials.
• Paid tax preparers who won’t sign the tax return, and don’t provide a copy of the filed tax return.

The Volunteer Income Tax Assistance (VITA) program offers free tax preparation services for taxpayers who meet VITA income guidelines. Call 800-906-9887 or go to irs.treasury.gov/freetaxprep.

Before Filing Your Return

Before agreeing to file your income tax return electronically and/or signing your income tax return, you should ask for a copy of your income tax return and review the following:

• Your personal information: (Name, Address and Social Security Number).
• Bank account number: If you choose to have your refund deposited directly into your bank account, make sure the bank account number on your tax return is yours. If you don’t have a bank account, you should request to have your tax refund sent to you by mail.
• Income reported on your tax return: Make sure all income information that is being reported on your tax return matches the income information that appears on your W-2 forms, 1099 forms, and other tax forms.
• Dependents information: If any of the dependents listed on your income tax return are not really your dependents, you should ask the tax preparer to remove the false dependent from your return.
• If you file an itemized tax return, review the deductions, such as out-of-pocket medical expenses, mortgage interest, childcare, charitable contributions, and education expenses (tuition and fees), among others, reported on Schedule A.
• If you paid to have your tax return prepared, make sure the tax preparer included their information and credentials and signed the return where indicated on page 2 of your income tax return (IRS form 1040) or page 3 of IRS form 1040-SR.
• Ask for a Copy of IRS form 8879, IRS e-file Signature Authorization, that you are required to sign to give permission to a paid preparer to e-file your tax return. Once the tax return is filed, you should ask for a copy of the filed return as well, and review it again. Make sure that all information reported or listed on your tax return is correct. YOU are responsible for all the information on the tax return. When the Internal Revenue Service detects a fraudulent return, YOU are the person who will be held responsible for any additional taxes and interest, and may be subject to penalties.

Reporting Tax Fraud

If you believe you are a victim of tax preparer fraud, you should contact the IRS immediately.

You can report tax fraud or abusive return preparers to the IRS on Forms 14157 and 14157-A. These forms are available on the IRS website at IRS.gov or by calling 800-829-3676 to order by mail. The completed forms, or a letter detailing the alleged fraudulent activity, should be sent to the IRS, at the address listed on the forms. The mailing should contain specific information about the individual or business, the activity, when the alleged violation took place, the amount of money involved, how you became aware of it, and any other information that might be helpful to an investigation. The identity of the person filing the report is not required, but it could be helpful in an investigation and it can be kept confidential.

South Carolina Legal Services’ Low Income Taxpayer Clinic assists taxpayers who are being audited by the IRS.