“Pay You $100 To File Your Taxes.”
That’s just one of the tactics that tax preparers are rolling out this season in an effort to woo your business. Other signs promote giveaways and the largest tax refunds. In spite of efforts by the Internal Revenue Service and seasoned tax professionals to steer taxpayers towards qualified preparers, many taxpayers are still being lured by promotions that seem to be good to be true.
Competition for services remains fierce for the more than 50% of taxpayers who use a preparer at tax time. With about 150 million taxpayers seeking out tax preparation services, it’s a serious business. Preparers may lure taxpayers in the door with the promise of low rates or fancy promotions but quickly add on fees for their services bringing those “low, low rates” way, way up.
For more help, here are nine tax preparer red flags to avoid:
1) Tax preparers who do not have a PTIN (Preparer tax identification number). The IRS insists that anyone who prepares or assists in preparing federal tax returns for compensation must have a valid 2015 PTIN before preparing returns. If your preparer doesn’t have a valid, current PTIN, he or she is not allowed to prepare that return.
2) Tax preparers who do not sign the return. Not only must your preparer have a PTIN, he or she must sign the return (electronic signatures count). If the preparer doesn’t sign your return, he or she is not allowed to submit the return.
3) Tax preparers who promise a higher refund than last year when your situation didn’t change. Tax rates didn’t move much from 2013 to 2014. In fact, there weren’t too many tax moves that bumped deductions and credits; if anything, it’s the opposite result for many taxpayers (taxes are increasing). If your refund is much higher than it was last year and your situation didn’t change much, your preparer might have inflated your deductions. Ask for an explanation before signing the return.
4) Tax preparers who want you to sign a blank tax return. Didn’t your mother tell you to read something before signing it? The same applies to tax returns. You are signing the return under penalty of perjury. You need to review it before you sign it. If it’s blank, there’s nothing to review – and thus, nothing to sign.
5) Tax preparers who want you to direct deposit your refund into an account that doesn’t belong to you. There are a bunch of reasons that preparers might offer for suggesting this – from the convenience factor to the inference that the refund might arrive a little faster – but the bottom line is that it’s prohibited by IRS. It’s also a good way to lose your refund permanently (when the preparer conveniently goes missing).
6) Tax preparers who base their fees on a percentage of your refund. Tax preparers who base their fees on a percentage of your refund are, statistically, more likely to be engaging in fraud or conduct likely to cause you a headache later (again, when the preparer conveniently goes missing). Fees may be based on a number of factors from type of return (1040 versus a 1040-NR, for example) to number of schedules and complexity – but tax preparers may not base their fees on a percentage of the refund amount or, as explained in IRS Pub 1345, “compute their fees using any figure from tax returns."
7) Tax preparers who promise refunds by a certain date. The IRS is emphatic that “[t]here are no guarantees” that refunds will be granted within a specific time. Offsets, processing problems, screens and other issues may keep refunds from being issued timely though most taxpayers who e-file and use direct deposit receive a refund within 10 business days. Tax preparers who make definitive claims to the contrary shouldn’t be trusted.
8) Tax preparers who guarantee a refund (or that you won’t owe) even before seeing your tax documents. Even preparers who prepare lots and lots of a return – and can size up taxpayers fairly quickly – can’t actually know that you’re getting a refund until you run the numbers. Be wary if they claim otherwise.
9) Tax preparers who imply endorsement by the IRS. The IRS doesn’t actually endorse any individual preparer although it does recognize certain credentials such as CPAs, attorneys, Enrolled Actuaries and Enrolled Agents (arguably, EAs are the closest to endorsed preparers as IRS comes since the Enrolled Agent license is actually issued by IRS) and the newest designation, the AFSP, or Annual Filing Season Program; you can refer to the IRS partner page for details about different kinds of credentials. But having a license doesn’t mean that IRS likes you any more than the next guy – and a tax preparer can’t imply otherwise. Similarly, by rule, a tax preparer cannot use the IRS’ name or initials or within its own name – and should not use the IRS or Treasury seal on its advertising materials. A preparer can, however, advertise that they are an “Authorized IRS e-file Provider.”
Be cautious, not greedy. Your your goal at tax time should be to “get your taxes done right, not to get a refund.” And that goes for those perks, too. While preparers who think out of the box might be clever, those who wave red flags should be avoided.