Abusive Tax Return Preparers

February 15, 2012

The Internal Revenue Service is at war with abusive tax return preparers who frequently prepare bad returns for large numbers of taxpayers who end up paying additional taxes and interest. In addition, when taxpayers are found to be guilty along with their tax preparers, they are subject to penalties and potential criminal prosecution.

Return preparer fraud usually involves the intentional preparation and filing of false income tax returns by unscrupulous preparers who may claim inflated business or personal expenses, false deductions, unallowable credits, or excessive exemptions. Specifically, the IRS has found that dishonest preparers often fill out fraudulent schedules showing false supplemental losses or expenses from a business that have not been paid by a taxpayer in order to offset certain items of income. Another area of abuse is the claim of false or inflated itemized deductions for charitable contributions or medical and dental expenses, along with false claims for earned income credits. The taxpayer may or may not have knowledge of the false items shown on the tax returns; however, it is the taxpayer who has the ultimate responsibility for all the information on the return, no matter who prepared it.

Abusive return preparers benefit from the fraud in a number of ways, including the diversion of a portion of the refund for their own benefit, the charging of high fees for the preparation of tax returns, and an increase in the number of clients by advertising guaranteed large refunds.

In order to fight this battle, the IRS established a Criminal Investigation Return Preparer Program to foster compliance with the tax laws by investigating and prosecuting abusive return preparers. The main goal of the program is to protect revenue, and it has more than doubled its criminal investigations against tax preparers in a single year.

IRS Criminal Investigation has developed a computer system to enhance its ability to identify and stop fraudulent filings. The system receives computer identification output of potentially fraudulent electronically filed tax returns and provides increased data for analysis.

The IRS has created a checklist for taxpayers to help them choose an honest preparer. The agency warns against preparers who claim that they can get a larger refund than other preparers or who base their fee on a percentage of the amount of the refund. Taxpayers should consider the reputation of the preparer before making a selection, and they should review and completely understand the return before signing it. Taxpayers should never sign a blank tax form and give it to a preparer to fill in later.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.

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