How to Report a Fraudulent Tax Preparer
Tax season is a stressful period to most Americans and it is not uncommon to find yourself in need of the assistance of a tax preparer to make sure your returns are filed properly. Unfortunately, the majority of tax professionals are honest, and some of them are involved in fraud or unethical activities. In case you have become a victim of a tax preparer who has defrauded you, or you suspect a tax preparer, it is important to understand how to report them. Denouncing tax fraud prevents others to fall victims and punishes unscrupulous professionals.
This blog will take you through the process of reporting a fraudulent tax preparer, what to do, who to call, and what red flags to be aware of.
What Constitutes a Fraudulent Tax Preparer?
A fraudulent tax preparer is a person who knowingly misrepresents or defrauds the tax payers in a bid to defraud the IRS.
Common fraudulent behaviors include:
Falsifying Information: Reporting wrong income, deductions or credits to increase the tax refund.
Charging Excessive Fees: Charging excessive fees to the clients which are usually a percentage of the refund.
Unlicensed or Unregistered Preparers: Practicing without proper qualifications or licenses or without acquiring the required licenses.
Failure to Sign the Return: A valid tax preparer should sign the tax return and add his/her Preparer Tax Identification Number (PTIN). A fake PTIN may not be signed by the fraudulent preparers.
Large Refunds: Fraudulent tax preparers can promise unusually high refunds or make other unrealistic promises to get customers.
Step 1: Gather Evidence
Ensure that you possess all the information before reporting a fraudulent tax preparer. This will assist in making your report more efficient and raise the likelihood of action being taken.
Here’s what you should collect:
Receipts and Documents: Collect any documents that are associated with your tax filing including the tax return itself, invoices, or receipts of the tax preparer.
Communication Records: In case you have emails, text messages, or written messages with the tax preparer, save them since they can be used to prove intent to commit a crime.
Information of the Preparers: Obtain the name of the preparer, name of business, address, phone number and PTIN (where applicable) of the preparer.
Your Tax Return: Where feasible, compare the tax return that the preparer has filed with your own financial records to find out the discrepancies.
Step 2: Contact the IRS
IRS does not ignore tax preparer fraud and has a reporting system to report misconduct.
In case you suspect that your tax preparer has been fraudulent, this is how you report them to the IRS:
Use Form 14157 – Complaint:
The IRS has a special form to report tax preparer fraud: Form 14157, Complaint: Tax Return Preparer. This is the form to be filled in to report unethical or illegal conduct of a tax preparer. You can submit this form online or by mail.
Submission:
You may send your filled form by mail to:
Internal Revenue Service
Return Preparer Office
1111 Constitution Avenue NW
Washington, D.C. 20224
Use Form 14157-A – Tax Preparer Fraud Referral:
In case you suspect that the tax preparer deliberately lied in your tax return, you are to fill in Form 14157-A, Tax Preparer Fraud Referral. This form is specifically used in cases where there is a fraudulent activity like falsifying income or deductions. You will also be required to bring evidence to back your claim.
Where to File: File this form with the address that is used to file Form 14157.
Call the IRS Hotline
In case you require urgent help or want to clarify your case, you can address the IRS on their tax preparer fraud hotline 1-800-829-0433. They can refer you to the appropriate resources and assist you in knowing what to do.
Step 3: Report to State Authorities
Besides the IRS, there are numerous taxing agencies in various states that govern the tax preparers. In case your tax preparer is practicing within your state, you may report him or her to the licensing board or regulatory body within your state. Every state has a mechanism of reporting fraudulent tax preparers.
Here’s how you can get started:
Look up Your State Tax Department: The majority of states have a department that regulates the tax preparers. Go to their web site and seek details of how to complain against preparers.
State Licensing Boards: In case your state has licensing or registration requirements of tax preparers, you can report a fraudulent preparer to the appropriate licensing agency.
Step 4: Report to the Better Business Bureau (BBB)
In case the tax preparer is a member of Better Business Bureau (BBB), you can lodge a complaint against him or her. The BBB assists in resolving conflicts and maintains an open record of business conduct. They cannot directly control the IRS, but they can contribute to the increase of awareness regarding unethical business practices.
Check the BBB Web site: Visit the Web site of BBB at www.bbb.org and search the business. In case you encounter the preparer, you may lodge a formal complaint.
Step 5: Consider Legal Action
You can also think about taking legal actions in case you have been financially damaged because of the activity of a fraudulent tax preparer. A tax attorney or consumer protection lawyer can give you an idea of what to do and whether you can sue or not.
Red Flags to Be Aware of a Fraudulent Tax Preparer
The most effective way to prevent fraudulent tax preparer is to identify the red flags.
Here are some red flags to be aware of:
No PTIN or EFIN: A qualified tax preparer should possess a Preparer Tax Identification Number (PTIN) that is issued by the IRS. Make sure they are properly registered.
Large Refund Promises: When a preparer promises you a big refund without even looking at your financial information, that is a huge red flag.
Percentage of Your Refund: Tax preparers who are legitimate do not charge a percentage of your refund.
Failure to Sign Return: All legitimate tax preparers are required to sign the return and put their PTIN. If they don’t, it’s a sign of possible fraud.
