Taxpayers Should Beware of Red Flags When Getting Tax Advice

Not all tax professionals are created equal.

That’s why taxpayers need to be vigilant and informed when seeking professional assistance with taxes to avoid falling victim to fraudulent practices. They should be aware of these red flags when dealing with tax professionals who might not have their best interests at heart.

Red Flags

Charging a percentage of a tax refund. Reputable tax professionals charge a flat fee for their services, which is typically based on the complexity of a client’s tax situation. They should never request or suggest charging a percentage of the anticipated tax refund.

If they do, consider it a clear warning sign of potential misconduct. Their primary focus should be on accurately preparing taxes, not on collecting a percentage of a client’s refund.

Depositing a refund in their account. A client’s tax refund is their money, and it should always be deposited directly into their own bank account. If a tax professional suggests routing a client’s refund into their account before transferring it to their client, it’s a violation of IRS rules and regulations.

Lack of transparency. Trustworthy tax professionals are committed to transparency. They should be more than willing to address questions and provide clear explanations regarding a tax return. If a tax preparer seems evasive, uncooperative, or unwilling to provide straightforward answers, this behavior should raise concerns about their credibility and intentions.

Not signing a tax return. Every legitimate tax professional should sign the tax return as preparer. Their signature indicates their responsibility for the accuracy of the return and their willingness to stand behind their work. If a tax preparer refuses to sign a tax return, something may be amiss.

Promising a larger refund than other preparers. Accurate tax preparation relies on a thorough understanding of a client’s financial situation and applicable tax laws. If a tax professional promises a significantly larger refund without conducting a comprehensive review of a client’s finances, this should raise suspicions. Tax professionals should always provide realistic refund estimates based on accurate information.

Not providing a copy of your tax return. It is a client’s right and responsibility to have a copy of their tax return for their records. Legitimate tax professionals should always provide a copy of the completed tax return. If a tax preparer refuses to do so or is hesitant to provide this essential document, it may signal a lack of transparency or potential wrongdoing.

Protecting Yourself

Preventing fraud is always better than dealing with its consequences. Here’s how taxpayers can protect themselves when seeking help with taxes:

Do research. Conduct thorough research before selecting a tax professional. Avoid relying solely on advertising or word-of-mouth recommendations, as they may not always reflect the full picture.

Ask for credentials. A trustworthy tax professional should have the qualifications and credentials to back up their expertise. Look for professionals who are CPAs, enrolled agents , or tax attorneys. These suggest the preparer has undergone rigorous education and are well-versed in tax laws and regulations.

Ask for a tax ID number. The IRS requires all paid tax preparers to have a preparer tax identification number. This unique identifier is issued by the IRS and helps track the activities of tax professionals. Legitimate tax preparers should readily provide you with their PTIN as a standard practice.

Keep records. Maintain detailed records of all financial transactions and communications. This includes copies of tax returns, agreements or contracts, correspondence, and any documentation related to tax filings. That way, if anything goes wrong, taxpayers can always refer to their notes to settle disputes or address issues.

Another tip is to always be prepared to report any suspected fraudulent behavior using IRS Form 14157 to help maintain the integrity of the tax preparation industry and protect fellow taxpayers.

Anyone can be victimized by fraud, but if taxpayers follow the advice above, they can minimize their chances.

If You Become a Victim

If you suspect you’ve become a victim of a fraudulent tax professional, don’t panic.

First, if a taxpayer receives an audit notice from the IRS, they should respond promptly and provide all requested information. Failure to do so can result in further complications.

Then, consider seeking assistance from a trustworthy tax professional to help navigate the audit process and rectify any issues with the tax return. They can provide valuable guidance and ensure compliance with IRS requirements.

Keep in mind that ultimately, the individual taxpayer is responsible for the information on their tax return, even if it was prepared by someone else. Taxpayers must take proactive steps to protect themselves from fraudulent tax professionals and ensure their financial well-being.

While fraudulent tax professionals do exist, there are also many trustworthy and competent professionals who can assist with taxes.

By being vigilant, taxpayers can protect themselves. Remember that financial well-being is at stake, so it’s essential to choose a tax professional wisely.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Lee T. Reams Sr. is co-founder of CountingWorks Inc and TaxBuzz and an expert on individual tax-related topics.

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