Many of us have heard of being "ghosted" after a date, but have you ever been ghosted by your tax preparer? Unfortunately, many have, and they're often met with serious consequences.
Black Market Tax preparers set up shop around tax time, usually in a rental or short-term location. They will often (but not always) promise fast or large refunds to filers. Also known as "Ghost Tax Preparers", these are non-certified individuals that bypass checks and balances in the tax preparer certification system. Commonly, the big refunds they promise are not calculated in legal ways.
In 2006, the IRS made efforts to increase oversight of tax preparers to combat unscrupulous activity in the industry and began to require all tax preparers to have a PTIN, or a Preparer Tax Identification Number. But this system only works if tax preparers sign the returns they file. Some tax preparers that don't want to follow the process, simply don't sign the returns!
Ghost preparers actually prepare the tax return, but when it's submitted to the IRS they ask the taxpayer to sign their own return, making it look like it was self-filed. This doesn't seem like a big deal, until something goes wrong and the preparer is nowhere to be found. Since the return is technically self-filed, the taxpayer is liable for any errors or omissions the ghost preparer made, including underpayment and negligence penalties, which often accompany these situations because the large refund promised was not accurate in the first place.
How do they do this? According to the IRS, "The ghost preparer can print the paper return for their client and tell them to sign and mail it to the IRS. Or, for electronically-filed returns, they will prepare it but won’t digitally sign it as the paid preparer."
By law, anyone who prepares, or even assists with preparing, federal tax returns for compensation must have a valid Preparer Tax Identification Number (PTIN). Tax preparers should sign the tax returns they prepare and include their PTIN on the tax return.
Here are some red flags to watch for and tips to avoid being ghosted by your tax preparer:
- Be wary of those offering fast refunds or large returns. Your return amount, deduction amount, or taxes owed is solely based on your past years tax information and the current tax laws. The time it will take to receive your refund or tax notice, will depend entirely upon the IRS.
- Request your tax preparer sign your tax return with you. If they refuse to do so, take that as a major red flag.
- Review your tax return before it's submitted to ensure it was signed properly by your tax preparer.
- Only allow funds to be deposited into your personal accounts. Some Ghost Preparers will have funds deposited into their accounts to be later distributed.
- Do your research! Check http://www.bbb.org for complaints and reviews on tax services in your area. Be cautious of "pop-up" and seasonal tax services. Don't be afraid to ask about their processes, credentials, and for their PTIN. The IRS has resources to help you check those credentials.