Five signs your tax preparer may be a fraud

You do a happy dance when your tax preparer promises a large refund.

But what you might not realize is that the guarantee is built on fictitious or inflated business losses and itemized deductions.

That’s what a onetime Baltimore tax preparer did, and he is now poised to spend 27 months in prison for producing more than 1,000 false returns that cost the Internal Revenue Service $4.7 million in lost tax revenue.

Here are five red flags to protect yourself from a bad operator — and what you can do if you cross paths with one.

MY PREPARER DOESN’T HAVE A TAX IDENTIFICATION NUMBER >>

One sure way to know whether your preparer is up to no good is the refusal to sign your return.

By law, anyone who is paid to prepare or assist in preparing your tax return must have a valid 2024 preparer tax identification number, or PTIN, according to the IRS.

Preparers who won’t sign their work may be trying to “ghost” you.

This could mean that the person doesn’t want the IRS to know they worked on your return or that they intend to alter the numbers before filing it electronically.

A Milwaukee preparer was sentenced last month to 41 months in prison for falsifying clients’ dependents, wages, and income or losses from businesses. The fraudulent information allowed the taxpayers to qualify for the earned income tax credit. The scheme cost the government $3.3 million.

To check — and you should — that your preparer is legit, go to irs.gov and search for “Directory of Federal Tax Return Preparers.” The agency said the directory is updated regularly and is current as of March 5. But, not all preparers are in the directory. It only includes those with a PTIN who hold a professional credential or have obtained an Annual Filing Season Program record of completion, the agency said. Looking for a preparer? The IRS Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs offer free tax help for qualified individuals. To find a VITA or TCE site near you, call 800-906-9887. You can also go to irs.gov and search for “Find a Location for Free Tax Help.”

THE PREPARER SUGGESTS SIGNING A BLANK OR INCOMPLETE RETURN >>

To save you a trip back to his office, a preparer may tell you it’s okay to sign a blank return, promising to fill in the necessary information.

Stop. You are probably about to be scammed and may end up owing the IRS a lot of money.

No matter who prepares your taxes — whether it’s a large tax software company or a longtime trusted tax professional — you are ultimately responsible for what is on the return.

Always review your return. Request a signed copy. If the return is filed electronically, get a copy and ask for proof it was submitted to the IRS.

THE PREPARER PROMISES A LARGE REFUND >>

Yes, many taxpayers are desperate for a large refund. As of Feb. 23, the average refund was $3,213.

But a preparer can’t guarantee a certain amount without knowing your tax situation.

THE PREPARER’S FEE IS BASED ON A PERCENTAGE OF THE REFUND >>

This is a big red flag. Tax preparers generally charge a flat fee or by the hour depending on the complexity of the return.

Basing their fee on the size of the refund could incentivize an unscrupulous preparer to use false deductions or credits, or inflate real ones.

THE PREPARER WANTS THE REFUND DIRECTED TO AN ACCOUNT NOT IN YOUR NAME >>

“Never have your refund or any portion of your refund direct deposited into an account under the return preparer’s control,” according to the Taxpayer Advocate Service, an independent organization within the IRS.

A man in Orange County, Calif., was sentenced to 30 months in federal prison last year for filing 400 returns with fraudulent refunds that cost the government more than $750,000. In this case, clients didn’t know their refunds had been redirected.

The preparer pocketed the difference between their legitimate refunds and the inflated amounts he reported to the IRS. He would change the bank account and routing numbers on the filed returns to accounts in his name.

MY TAX PREPARER FALSIFIED MY RETURN. NOW WHAT? >>

If you see something, say something.

If you review your return and spot fake or inflated deductions or credits, absolutely report the preparer. But you may not know your preparer was dishonest until you get a letter from the IRS.

The IRS says you can report a tax return preparer for the following misdeeds:

• Failing to enter a Preparer Tax Identification Number (PTIN) on your return.

• Refusing to provide clients with a copy of their tax return.

• Altering your tax return documents.

• Using an incorrect filing status to generate a larger refund.

• Creating false exemptions or dependents with the intention of increasing the amount of the refund.

• Falsifying or omitting income to boost the amount of a refund.

• Making up expenses, deductions or credits.

There are two ways to report the fraud, the IRS says.

If you received a notice or letter from the agency, complete Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit, and Form 14157, Complaint: Tax Return Preparer. Even if you don’t receive a notice, use the forms to report the preparer.

Be careful in selecting a tax preparer, or you may end up in a hot mess with the IRS.