When the IRS detects the false return, you the taxpayer – not the return preparer – must pay the additional taxes and interest and may be subject to penalties. This can be a very serious tax problem.
Return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim false deductions, inflated personal or business expenses, excessive exemptions on returns prepared for their clients or unallowable credits. Preparers may also manipulate income figures to obtain tax credits fraudulently.
Sometimes, you may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on your tax returns.
While most preparers provide excellent service, be careful when choosing a tax preparer. You are ultimately responsible for all the information on the tax return even if someone else prepares a tax return.
Consider the Following When Choosing Your Tax Preparer
No matter who prepares your tax return, you are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.
Use a reputable tax professional who signs your tax return and provides you with a copy for your records. Accept a referral to a preparer from a trusted friend or advisor.
Avoid preparers who base their fee on a percentage of the refund amount.
Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?
Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months or years after the return has been filed.
Accountancy firms that have been around for awhile may continue to be around for awhile longer – at least long enough for your purposes.
Review your tax return before and ask questions on entries you don’t understand before you sign it.
Find out the person’s credentials. Only attorneys, CPAs and enrolled agents can represent you before the IRS in matters including collection and appeals, and audits. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
Be careful with tax preparers who claim they can obtain larger refunds than other preparers.
Reputable preparers will ask to see your receipts and will ask you questions to determine your qualifications for deductions, expenses, and other entries. Their purpose is to help you avoid additional taxes, penalties, interest taxes that could result from an IRS examination.
Tax evasion is a crime – a felony – punishable by imprisonment and a large fine.
Some return preparers have been convicted of, or have pleaded guilty to, felony charges. For example, near the end of 2006, in San Diego, California, Susan E. O’Brien, a professional tax preparer was sentenced to over ten years in prison and ordered to pay $113,179 in restitution. She was convicted for defrauding the United States, aiding and assisting in the filing of fraudulent tax returns, and tax evasion.
Co-defendants Robert Richard Evans and William Dean Cook were also sentenced to prison for terms over six years and two years, respectively. Evans promoted, sold and managed domestic trusts used by clients to hide their income and assets from the Internal Revenue Service while O’Brien prepared numerous income tax returns that claimed false business deductions. O’Brien also was convicted of evading the payment of tax on her own income. The tax evasion scheme resulted in lost tax revenue of more than $1 million.