If you don’t have the time or knowledge to do your own taxes, hiring a tax professional is a great way to meet your tax obligations. Learning how to avoid tax preparer fraud and choosing the right tax professional for your needs is a big decision. As IRS Commissioner Danny Werfel said in 2023, “Taxpayers should remember that they are always responsible for the information reported on their tax returns.” This means that you are responsible for ensuring your tax return is correct, even if you’re hiring a tax professional to help you.
Bad tax professionals are cheap but expensive
In late 2023, a Georgia tax preparer was sentenced to federal prison for his participation in a tax fraud scheme in which he filed false income tax returns for unsuspecting clients over a four-year period and collected over $1.2 million from this tax scam. In Alabama, there was another tax preparer who submitted over two dozen returns and collected approximately $400,000 in illegal refunds.
While most tax professionals are sincere and honest, there are many tax preparer fraud stories involving opportunistic tax fraudsters and unsuspecting taxpayers. It is best to educate yourself about the signs of a bad tax professional so you don’t fall into the trap of choosing the cheaper option.
Here are some of the most common signs of a bad tax professional:
- They do not sign the return and try to be “invisible” in their tax preparation: The IRS calls such tax preparers “ghost preparers” because they attempt to hide the fact that they’ve prepared your return by printing the return and having you sign it and mail it yourself. In the case of e-filed returns, ghost preparers will prepare your return but refuse to digitally sign it.
- They don’t have a valid preparer tax identification number (PTIN): You should never entrust your tax preparation and tax filing to a tax professional who does not have a valid preparer tax identification number (PTIN). As the IRS notes on its FAQ page, “The PTIN regulations require all tax return preparers who are compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax to register and obtain a PTIN.” In short, if you’re paying a tax preparer to prepare your return, make sure they have a valid PTIN.
- They create fake expenses and income to get tax deductions: Since tax deductions reduce your taxable income, many bad tax preparers will encourage you to falsify business expenses so you can reduce your tax bill and claim a higher refund, which means a higher percentage amount for them. This gets you into trouble when the IRS starts talking to you about your burden of proof.
- They ask you to sign a blank or partially complete return: If a tax professional asks you to do this, do not do it. Run from them and find a different tax preparer quickly. Remember that you are ultimately responsible for the information on your tax return. If a tax professional is asking you to essentially sign a “blank check” on their work, you can and should suspect their motives for doing so. Any legitimate tax professional will let you review your return and ask questions before they ask you to sign off on it.
- They twist eligibility facts: It is in your best interest to educate yourself about the tax preparation process and learn basic information about the tax credits and tax deductions you’d like to claim on your return. One way bad tax professionals trick clients is by misrepresenting eligibility requirements to convince you to unknowingly sign off on their scam. For example, the lucrative Employee Retention Credit has spawned hundreds of tax fraudsters (called “ERC mills”) who intentionally mislead clients to claim erroneous ERC amounts so they can collect a higher refund percentage amount.
- You are not asked to prove deductions: Providing evidence that supports your tax return’s information is essential to filing with complete confidence and peace of mind. You should be suspicious of any tax professional who doesn’t require you to provide supporting documents for the information on your tax return.
Where to find a good tax professional
Recommendations from family, friends, and business partners can be a great way to start making a list of potential tax preparers. But you should also check the IRS Directory of Federal Tax Return Preparers.
Maintained by the IRS, this database of federal tax return preparers lets you filter verified tax professionals by their last name, zip code, distance, and credentials and qualifications. As you begin assembling a list of recommended tax preparers, be sure to verify that they appear in this database.
Questions to help you find the best tax professional for you
Once you have put together a list of verified tax professionals, it’s time to start filtering based on your specific tax needs. Often, people skip this step and hire the first tax preparer that is recommended to them. But this can be problematic since recommendations aren’t always the best fit for your needs. Here are some questions you can ask to narrow down your list of tax professionals to those that are best for your needs:
- Do they offer the services you need? This may seem obvious but overlooking it can waste time for both you and the tax professional and you’ll both walk away frustrated. Clarify whether you need tax preparation services, tax filing services, tax planning, and quarterly tax strategy.
- Do they have experience in your industry or situation? Look at their online reviews or ask them directly whether they have helped others in your industry or with similar tax needs.
- Do they have up-to-date knowledge? There are a couple of ways you can answer this question. First, look at their social media profiles and recent blog posts on their website and see what kind of advice they’re giving. Are their posts about things happening right now or is their feed full of content that is several years old?
- Do they have a good reputation? While you might already have some idea of this tax professional’s reputation from the person who recommended them to you, you always want to check online reviews to hear about the experiences of current and past clients. This helps you get an idea of what you can expect after signing on with them.
- Are they technologically savvy? Good tax firms invest in good technology so they can work efficiently and create an incredible experience for both their staff and their clients. In contrast, an outdated firm will rely on outdated tools, systems, or mindsets that negatively impact their work quality and turnaround time for clients.
- Is their fee structure reasonable and clear: Some tax professionals will feature their prices on their website but others may only provide pricing through a proposal or engagement letter. Check their website or ask them so you have a clear idea about their pricing structure and are not surprised by any hidden or unexpected fees.
- Do they offer quarterly tax planning? Annual tax planning is the de facto way people do taxes but it’s not enough. Doing taxes once a year before each tax season doesn’t give you or your tax professional enough time to properly consider changes in tax laws or act on tax incentive opportunities. It’s also much harder to account for significant changes in your life or business that impact your tax return. Our recommendation is to choose a tax professional who reviews and adjusts your tax plan quarterly so you are prepared, not panicked, during tax season.
- What kind of marketing do they have? It might be unconventional to rate a tax professional or CPA by their marketing but hear me out. At MBS Accountancy, we invest in our marketing, especially our online marketing, for three reasons. First, an investment in marketing shows everyone that we are committed, and have the capacity for, growing and promoting our firm. Second, it shows that we understand the importance of appearance and branding in our professional reputation. Finally, our marketing reflects our philosophy of putting education first and sales second. Are there bad companies with good marketing? Definitely, so you should never hire a tax professional based only on their marketing. But you should always consider it as you search for a reliable tax preparer or tax advisor. Good marketing signals a growing business.
Are you ready to stop your search for the best tax professional?
Since 2011, our accountants and CPAs have helped companies and nonprofits prepare taxes accurately, file them by the appropriate deadline, and plan ahead for the next one. Whether you are filing for one business or a multi-business entity, our tax accountants are ready to help you. Contact us when you’re ready for a solid tax strategy. We’ll assess your needs and get back to you with the next steps within 1 business day. Why wait? With a good tax team like MBS Accountancy on your side, you’ll be able to stay compliant and confident about your company’s tax position year after year.