Beware of Unethical Tax Preparers

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Blog DimensionsYes, it’s income tax season and if you’re unfamiliar with the territory, you probably plan to hire a preparer. An estimated 60% of all filers pay someone to assist with their returns. Your choice is important as unethical preparers can be found from one end of the country to the other. Sadly, only a small percentage of these fraudsters wind up in jail.

In recent years, U.S. Attorney’s Offices around the nation have filed numerous suits against tax preparers who blatantly violated client trust. Nancy L. Hilton of California, Chatonda Khofi and Ishmael Kosh of Minnesota, Troy Solomon and Antonio Gadsden of Florida and Bridgett Terry-Sankey of Alabama are just a few of the preparers indicted on charges that they committed identity theft against actual or potential clients.

You must understand how they work to understand the risks. Sometimes the fraud is simple — the dishonest preparer takes Social Security numbers (SSN) and other personal data needed to file a return but directs the refund owed to an account the preparer controls. In other instances, they ‘share’ information with outsiders who file bogus returns. In one notable 2013 case occurring in Clayton County, Georgia, fake preparers didn’t wait for folks to walk in the door; they sought them out aggressively.

“(Bernardo) Davis and his co-conspirators (of Davis Tax Service) used toll-free telephone numbers, websites, flyers, and radio advertisements to advertise the “stimulus payments” and collect victims’ personal information.  They also recruited “runners” who promoted the scheme by word of mouth and collected victims’ personal information.  In addition to the “stimulus” charade, Davis and his co-conspirators acquired names from a variety of sources, including prisons and homeless shelters, to use in the fraud,” United States Attorney Sally Quillian Yates said when her Atlanta office announced Davis’ indictment in a $19 million scam.

It’s tough to nail down the exact amount the Internal Revenue Service (IRS) loses to identity theft-related fraudulent returns but it’s often more than $5 Billion per year. Dishonest preparers are responsible for a major slice of this drain on the U.S. Treasury and are always prominent on the agency’s Dirty Dozen scams list.


Preparer Requirements


Tax preparers are not currently required to have a full license but the IRS has pondered the concept. The agency tried to implement more stringent criteria for preparers but lost a court case in 2013 that derailed that plan. Last December, two bills were introduced in Congress that would regulate preparers further but both are likely to face fierce opposition. Currently, only a handful of states regulate unlicensed preparers.

For now, most of the investigation burden rests on the taxpayer. Who you choose to do your return matters so you need to do some homework before you turn over any personally identifiable information (PII) like your SSN or date of birth.

Start with the National Directory of Registered Tax Return Preparers & Tax Professionals, which tracks Preparer Tax Identity Numbers (PTIN). You can search to determine whether your preparer candidate has a PTIN at

“Anyone who is paid to prepare or assist in preparing federal tax returns or claims for refund must have a PTIN. All enrolled agents must also have a PTIN. Attorneys and Certified Public Accountants do not need a PTIN unless they are compensated for preparing or assisting in preparing federal tax returns or claims for refund,” the IRS website explains.

To become an authorized e-file provider, preparers need to provide fingerprints and answer questions about past felony charges.


Choose Wisely, Focus On Security


There are many considerations to weigh. Before you hire someone, request a preliminary interview.

  • You should ask if they have a privacy policy, how they secure their data network and if they provide employee data security training.
  • Also, look for red flags that indicate data is not safeguarded well. Are files left in stacks all around the office? Can you glimpse at other taxpayers’ data? Are documents well secured?
  • Determine who works with the preparer and whether they seem trustworthy.
  • Inquire about others who would have access to the offices including a cleaning crew – anyone who could take photos of your data with a smart phone.
  • Ask the preparer if they hold membership in professional organizations like NATP or CPAS. Those groups normally require continuing education classes for active members.
  • Ask how the preparer will destroy computer hard drives that fail or are replaced. A thorough wipe of all data should be done but it’s not cheap. All too often, computer equipment is resold without proper data removal.
  • Data breaches at preparers may be rare but they have wide reaching consequences. Even CPA and attorney offices are vulnerable to hackers.


A Last Word Or Two


The IRS wants to hear about preparer problems. Their form 14157 can be used to report identity theft and other issues including failure to return documents or finish returns.

If you owe additional taxes, you’ll be asked to put your SSN on the check you mail in. If you balk at penciling in that SSN, the IRS will probably write it on your check for you. While this helps get the money to the right place, it also means your canceled check would be a bonanza for identity thieves as it contains your SSN, name, address and banking data. Check your bank account statements to make sure no cloned checks are presented against your account in the months after filing.

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