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Avoiding Scam Tax Preparers

Tax season is when crooks go hunting for victims

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You haven't kissed 2020 goodbye until you've filed your 2020 income tax return — and, 2020 being what it was, you may need extra help. If you did some freelance work or received unemployment benefits, or if you're eligible for additional stimulus funds, you may decide it's worthwhile to pay a tax preparer to help you file your return this year. But you also need to be particularly careful when choosing that tax preparer. “This is an extraordinary year for fraud,” says Eva Velasquez, president and CEO of the Identity Theft Resource Center.

Tax scams have always been an issue, and they are an even bigger concern this year, because so many people have changes to their financial situations and because scam artists have been taking advantage of extra government benefits. It may also be more difficult to do the usual vetting if you aren't meeting the professional in person due to concerns about COVID-19.

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The information you give a tax preparer can be a treasure trove for ID thieves, so you need to do your research before deciding who to work with. “This is some of the most personal information that there is, such as your Social Security number, which unlocks the key to your identity and to so many other things,” says Susan Grant, director of consumer protection and privacy for the Consumer Federation of America. Not only could a scam tax preparer steal your refund, but he or she could also use your personal information to get government benefits or loans in your name.

There are other types of tax preparer fraud, too — such as a scam tax preparer who charges an up-front fee to file your taxes and then disappears with your money. “The person may take a payment for doing your taxes and never do them,” says Grant. Or they may claim to identify valuable deductions and credits that can result in a big refund — but then be impossible to find when the IRS questions your return months later.

"One of the challenges is when taxpayers go to a paid tax preparer in their neighborhood that kind of pops up,” says Lorelei Salas, commissioner of the New York City Department of Consumer and Worker Protection. “They may have problems with the tax forms and are contacted by the IRS. But the tax provider may disappear after the tax season, and you can't get in touch with them again. As soon as you realize there's a problem, they're gone.” For example, her department helped a woman who worked with a local tax preparer who didn't charge an up-front fee but offered to receive her refund at his office and take out his $900 fee before sending her a check for the remaining refund. She never received the refund, and later discovered he had put false information on her return that had inflated the refund. The IRS wanted the extra money back.

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Even a legitimate tax preparer can have problems if they don't take extra precautions to protect your personal information and could become a victim of a data breach, especially since they may not be meeting with you in person this year.

Red flags

  • Never sign a blank tax return form. Review your return before you sign it, and ask questions about any suspicious deductions. “Before you sign the return, the tax preparer should go over the tax return with you, explain how things were calculated generally, and answer any questions that you have,” says Grant.
  • Make sure the tax preparer signs the form above your name before you sign it. All paid tax preparers must have a preparer tax identification number, and they must sign the return and include their PTIN. Make sure you know how to contact the tax preparer if you have questions or hear from the IRS later on.
  • Understand how you'll get your refund. Make sure your bank's routing number and your bank account number are submitted correctly on the completed return if you want to get your refund by direct deposit.
  • Find out how the tax preparer charges their fee before you get started. “A red flag would be somebody who charges by a percentage of the refund you get,” says Grant. You usually have to pay a flat fee based on the complexity of your return, or you may pay an hourly rate for tax filing and tax planning from a CPA or other professional. There are also many free tax preparation services. (Keep reading for a resource list.)
  • Be wary of refund anticipation loans. A preparer who offers to get your refund faster usually charges an extra fee or a high interest rate on the loan. “They say they can get your money sooner, but it comes at a cost,” says Salas. “It's not always clear what you are paying for the service.” You can usually get your refund within 21 days if you file your return electronically and have the money deposited directly into your bank account. You can check the status of your refund with the IRS’ Where's My Refund? tool. 
  • Continue to watch out for scams after you file your return. Crooks claiming to be from the IRS are known for emailing or calling taxpayers and telling them they must provide their personal or banking information before they can receive their refund. “The IRS will not call you,” says Salas. “Do not answer those unsolicited calls, texts or emails.” If the IRS has questions for you, they'll send a letter. See the IRS’ Tax Scams/Consumer Alerts for the most-recent scams and what you can do to protect yourself.
  • If you do have problems with a tax preparer, you can file a complaint with the IRS by submitting Form 14157, a Return Preparer Complaint. You can also report the preparer to your state or local consumer protection agency. The New York City Department of Consumer and Worker Protection, for example, has a team of enforcement inspectors who visit tax prep businesses to make sure they're complying with the law.

How to Find a Reputable Tax Preparer

There are many different kinds of tax preparers who can help with your return, depending on how much you're willing to spend and the level of help you need. Some just file the tax return; others help with tax and financial planning or will represent you in front of the IRS if you are audited.

Ask your friends and colleagues for recommendations, especially if they've worked with a preparer for a few years. You can check a tax preparer's credentials by using the IRS’ directory of federal tax return preparers, where you can look up tax professionals in your area who have an IRS preparer tax identification number and find out what special credentials they hold (CPA, enrolled agent, attorney, annual filing season program participant, or another PTIN holder).

For example, a certified public accountant has to meet education, exam, experience, licensing and continuing education requirements, says April Walker, lead manager for the tax practice and ethics team for the American Institute of CPAs. A CPA can also represent you in front of the IRS if you're audited. You can find a CPA in your area by using the AICPA's Find a CPA tool. 

An enrolled agent is licensed by the IRS, must pass a comprehensive exam, and must complete continuing education requirements. Enrolled agents are also authorized to represent taxpayers in front of the IRS. Many specialize in tax planning and helping with audits. You can find one through the National Association of Enrolled Agents

TurboTax, which specializes in tax software, also introduced a full-service option this year, where a CPA or enrolled agent will complete your return for you.

You can also work with a tax preparation service either in person or virtually, including H&R Block, Jackson Hewitt or an independent tax preparer.

You may be able to get free help from an AARP Foundation Tax-Aide volunteer, who can help anyone but focuses primarily on taxpayers who are 50 or older and have low to moderate income. You can look up free-filing programs in your area with the IRS's Get Free Tax Prep Help tool. 

If you're comfortable filing your taxes online and your adjusted gross income in 2020 was $72,000 or less, you can file your federal tax return for free through IRS Free File. The IRS partners with several online tax preparation companies, such as TurboTax, to offer these free tax-filing services.

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