IRS Increasing Investigations of Preparers of Fraudulent Tax Returns

According to the IRS, the service is stepping up the investigations of fraudulent preparers. Unfortunately for taxpayers, they are often unaware of the intent of the preparers, and generally just happy that they have received a refund. But, with that comes risk. The taxpayer will still have the tax liability, penalties, and interest to pay, causing great financial burden for the taxpayer.

According to the IRS, return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits, or excessive exemptions on returns prepared for their clients. Abusive preparers may also manipulate income figures to obtain fraudulent tax credits, such as the Earned Income Tax Credit.

The IRS has found that these preparers derive financial benefit from a number of ways, including diverting a portion of the refund for their own benefit; charging inflated fees for the return preparation services; and increasing their clientele by advertising guaranteed larger refunds.

The following are signs of a fraudulent preparer:

           • Claims to be able to obtain larger refunds than other preparers;
           • Fee is based on a percentage of the refund obtained, and:
           • Refusal to sign the return or provide the taxpayer with a signed copy of the return.

The IRS reminds us, “Taxpayers need to keep in mind that they are ultimately responsible for their tax return.” The IRS recommends following these tips when hiring a preparer:

           • Get referrals from satisfied clients (hint: the amount of the refund should not be a factor – a high
                    refund return does not indicate it was prepared properly);
          • Ask the preparer about their training, experience, and current knowledge of tax law;
          • Find out if the preparer can represent taxpayers in an audit. Only Certified Public Accountants,
                    Enrolled Agents, and lawyers are authorized to represent taxpayers in front of the IRS;
          • Consider whether the individual or the firm will be around to answer questions about the
                    preparation of the tax return months or even years after the return has been filed;
          • Always review the return before signing, ask questions on entries you don’t understand, and get a
                    copy of the return for your records;
          • Never sign a blank tax form or one completed in pencil.


Anyone who suspects tax fraud or knows of an abusive tax preparer should fill out Form 3949-A
Form 3949-A