Tax professionals share how they handle client concerns about preparer fraud
More than half of U.S. taxpayers use a paid preparer according to the Internal Revenue Service — the same agency that year after year ranks preparer fraud high on its annual list of headline tax crimes. What to tell jittery clients?
“In Connecticut, we’ve had some arrests of fraudulent preparers and clients bring that up in passing. In the past 18 years, no one has ever questioned my standing but they often wonder why and how people do it,” said Morris Armstrong, an Enrolled Agent and registered investment advisor with Armstrong Financial Strategies, in Cheshire, Connecticut. “Signs that I tell them may be a trigger are very high refunds, very high fees, and of course their telling you what you should deduct.”
“Many clients share stories about friends and relatives getting screwed by tax professionals, both licensed and unlicensed alike. I reassure clients by inviting them into my house, showing them how I live and that I chose to use my tax knowledge protecting others,” said John Dundon, an EA and president of Taxpayer Advocacy Services in Englewood, Colorado.
“Over the years, I’ve had new clients come to me, and when I compare the current year with the prior year there are major differences, especially with Schedule A deductions,” said preparer Andrew Piernock at Piernock Accounting and Tax Services in Philadelphia. “I explain to the new client that the prior year has major issues and in the event of an audit they should have the backup to support those deductions. I reassure them that I do everything by the book and I am not putting their return and my business and reputation in jeopardy.”
Someone else’s mess
Preparers report that a sometimes-small but growing number of clients express concern, and that new preparers must often first clean up messes before reassuring taxpayers.
“The taxpayer pays them a high preparation fee, gets a big refund, but often has to pay it back with interest and penalties. I’ve found these crooked preparers often prey on low-income and minority populations,” said Patrick O’hara, an EA with the Tax Alternative Group in Poughkeepsie, N.Y. “It’s unfortunate that taxpayers seem to have more confidence in the unscrupulous preparer who promises big refunds than the licensed professional who says, ‘That’s not allowed …’”
“I had a representation client come to me after dealing with an abusive preparer. In fact, he went so far as to send out letters telling his clients that the IRS may come calling and he did nothing more than put what they told him on the return,” recalled Helen O’planick, an EA at HELJAN Associates in Manchester, Pennsylvania. “Well, mileage for commuting and expenses were not deductible — pantyhose and manicures for a teacher? Did he tell them that? No.”
“I haven’t had much experience with this issue in the past [but] during this past tax season we took on a new client who never got their refund last year and their old preparer just isn’t being straightforward,” said Marilyn Heller Ayers, a CPA in Brick, N.J. “They’re an older couple living on a fixed income and the refund was nearly $2,500.”
Is the blame always entirely the former preparer’s?
“While I feel sorry for the taxpayers who have been impacted, I also suspect that in many cases that they’re complicit. You know that you only have two kids and that you don’t have a business — let alone a business that generates a $20,000
No ‘coordinated strategy’
The Treasury Inspector General for Tax Administration recently reported that the IRS lacks a coordinated strategy to deal with unregulated tax preparers.
The report pointed out that because IRS efforts to regulate preparers were invalidated by litigation, preparers are generally unregulated and they can prepare returns with no formal training or education — not to mention extensive evidence that some prey on innocent taxpayers.
“A few years ago a tax preparer falsified deductions and embezzled funds of clients. We inherited a few of her clients, so we had firsthand knowledge from prior returns,” said tax preparer Eric Hansen in Omaha, Nebraska. “Her story was locally publicized and the IRS was informed. The IRS did nothing. Hard to reassure clients when the IRS amazingly allows this preparer to continue doing tax returns.”
The TIGTA report comes amid a fresh legislative effort to regulate preparers: the bipartisan Protecting Taxpayers Act, which includes a number of reforms to the IRS, including statutory authority to regulate paid preparers “in a balanced way.”
Some preparers try to educate clients. “I tell everyone every time and include scam warnings in Facebook promo material and still some don’t get the message. But most are saying they know about it,” said Paul Knapp of Exact Income Tax Service, in Santa Fe, N.M.
Kathryn Morgan, an EA at Puzzled by Taxes in Haughton, Louisiana, clarifies for clients the difference between a tax preparer and a tax professional.
“Tax preparer: someone who prepares an income tax return for another,” she said. “Tax professional: a trained professional who maintains continuous education to update their knowledge and then uses that knowledge to assist a taxpayer in completing a thorough and accurate income tax return resulting in the lowest legal tax liability for the taxpayer.”
Kerry Freeman, an EA at Freeman