Each year, the number of individuals expected to file a tax return increases. This includes highly vulnerable individuals, such as those who do not speak English and consequently face challenges in communicating with the IRS or police as necessary. As a result, there has been a similar significant rise in tax preparer fraud, impacting taxpayers nationwide. The examples below are just a few of the recent accusations lobbed at scamming tax preparers.
In 2023, Thein Maung and Phyo Mi were convicted for impersonating attorneys and tax preparers in Ottumwa, Iowa in a $4 million scheme. Following their conviction, they were sentenced to nine and twelve years in prison for defrauding multiple taxpayers. Their victims were primarily first-generation immigrant families and international students lacking legal expertise or linguistic proficiency to comprehend their tax returns.
From 2015 to 2018, three individuals in Florida, namely Christopher Johnson, Jasen Harvey, and Arthur Grimes, engaged in fraudulent activities by submitting falsified tax returns as part of a $3 million scheme. These tax returns wrongfully asserted that the taxpayers had already made substantial federal tax withholdings, resulting in significant tax refunds that the taxpayers were not entitled to receive. Furthermore, Jasen Harvey persisted in filing returns from 2020 to 2021, despite being instructed to cease this activity by a federal judge.
From 2014 to 2021, Tijan Mboob, a resident of Charlotte, North Carolina, faced charges related to his supposed involvement in a $4.7 million tax fraud scheme as a ‘ghost preparer.’ Ghost preparers are individuals who fail to report their involvement as a preparer on the tax return, despite being compensated for completing the return. The tax returns he prepared falsified filing statuses and improperly claimed certain credits and deductions. Furthermore, when the taxpayers he assisted were audited by the IRS, Mboob declined to cooperate with the authorities.
Having personally worked with many victims of tax fraud in correcting and amending their returns, here are some of the common types of fraud we have encountered and signs the preparer is not handing your return properly.
The Tax Preparer Doesn’t Sign the Tax Return
Paid preparers are required by law to furnish their name, signature, identification number (referred to as their PTIN), and information about their firm when they prepare a tax return. For instance, in the case of individual tax returns (Form 1040), there is a section labeled “Paid Preparer Use Only” where the taxpayer signs at the bottom.
Those who fail to comply with these requirements are referred to as “Ghost Preparers” and typically are seeking to avoid accountability for any fraudulent activity related to the form. They abstain from signing the return to avoid leaving any trace of their involvement in its completion. Consequently, in the event of an IRS audit, only the taxpayer’s information and signature appear on the return.
Similarly, they may request to be paid in cash to avoid leaving a money trail. If not careful, the taxpayer will end up in a “he said” / “she said” situation without the ability to hold the preparer liable.
You See Energy Credits (Especially for Renters)
Typically, when fraudulent energy credits are claimed, the tax preparer is either increasing their own fee based on the increased refund or funneling the additional refund to their own bank accounts without telling the client.
Typically homeowners are more likely to qualify for energy credits than renters due to the nature of who pays to improve the home. While there are many people who do genuinely qualify for energy credits, be aware that this is a popular choice for falsified credits.
If you notice that your tax preparer is claiming energy credits or if you see Forms 8936 or 5695, just double check that the credits do actually apply to you. Similar credits that are often targeted by tax scams include child tax credits, education credits, moving or relocation credits, and itemized deductions. Don’t forget to get the tax preparers signature on the return!
The Taxpayer is Encouraged to Allow Another Person To Claim Their Child
There are legitimate methods for parents to divide certain tax credits or deductions amongst one another if the parents are filing separately. Typically, in these cases, one parent qualifies for all of the tax benefits related to a child by right of being the primary financial provider and/or custodial parent. They then sign away all or some of those rights to the other parent.
More concerning is when a tax preparer encourages a parent to allow a third, non-parental party to claim a child on their tax return. This typically occurs in large families where they have already maximized their benefits or who are already receiving significant tax refunds without having to claim all of their children on the return.
In this case, scams occur where taxpayers ‘share’ their children with other family or friends, allowing them to wrongfully claim to be the child’s caregiver.
The rules for claiming dependents are strict and the IRS tends to notice when a social security number moves between tax forms year to year. Very harsh penalties may result.
Tax Refunds Do Not Arrive When Expected
One of the more prevalent forms of fraud occurs when the tax preparer fails to submit the tax return. Typically, the tax preparer has inappropriately mislead the taxpayer into believing they are eligible for a sizable refund. By avoiding filing the return, this enables the tax preparer to subsequently raise their filing fee without the risk of quick scrutiny from the IRS. Furthermore, the taxpayer themselves may not notice until weeks or months later when they fail to receive their refund. Many taxpayers wait until the following year to ask their next tax preparer about the situation.
Conversely, the tax preparer might mislead the taxpayer about an outstanding debt to the IRS. The taxpayer gives the money to the tax preparer, who promises to settle the amount with the IRS on the taxpayer’s behalf, yet ultimately retains the funds for themselves.
The Internal Revenue Service is frequently slow in conducting audits of tax returns, as they wait for late filers to submit their returns. It could take as long as two or three years for them to initiate an investigation. By that time, the tax preparer may have relocated or simply disappeared, leaving the taxpayer in a predicament.
That predicament will be worsened if the taxpayer actually owed the IRS money. Prior legal precedents suggest that the taxpayer, rather than the tax preparer, bears the ultimate responsibility for ensuring that the tax return is filed properly and on time. In cases where the tax preparer has engaged in fraudulent activities, taxpayers may have the option to pursue a separate claim against them. However, this does not absolve the taxpayer from potential IRS penalties and interest related to the failure to file.
Taxpayers should carefully monitor the IRS’s “Where’s My Refund” tool to assess whether their tax return has been properly received. It will work regardless of whether you have a refund or balance due; if you owed money then you input $0 as the amount of the refund. It may take a week or so to start processing, but it should tell you that it is under review and when it has been processed.
The Tax Refund Due Does Not Match Your Tax Return.
If the IRS reduces your tax refund, they will mail you a letter documenting the change in your return.
If there is a reduction with no letter explaining the situation, that money may have been siphoned off by the tax preparer. Refunds can be directed into separate bank accounts and fraudulent preparers may direct part of a refund into their own accounts if they believe the taxpayer won’t notice or question the situation.
Carefully look at the end of your return to ensure the bank account number and routing number are correct.
The best way to safeguard your interests when filing a tax return is to hire a professional, licensed tax preparer you can trust and to understand (at least in general) why your tax return looks the way it does.
Blessing Associates, LLC are licensed attorneys and tax preparers, and we always sign our name with pride. We passionately believe that taxpayers should understand their own returns and encourage clients to ask questions whenever there are concerns. We are more than willing to sit with clients and go through the tax return in detail, explaining each credit and deduction. If the return changes from prior years, we explain why the change occurred and how it will impact the return.
If you are interested in having us help with your tax return, you can contact us at blessingblc@outlook.com to request a free 30 minute meeting.
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