The IRS recently issued a statement for tax filers to be wary of ‘ghost preparers.’ If you’re wondering if your tax expert falls under this mysterious categorization, here’s the warning:
“The Internal Revenue Service reminds taxpayers to avoid “ghost” tax return preparers whose refusal to sign returns can cause a frightening array of problems. It is important to file a valid, accurate tax return because the taxpayer is ultimately responsible for it. Ghost preparers get their scary name because they don’t sign tax returns they prepare. Like a ghost, they try to be invisible to the fact they’ve prepared the return and will print the return and get the taxpayer to sign and mail it. For e-filed returns, the ghost preparer will prepare but refuse to digitally sign it as the paid preparer. By law, anyone who is paid to prepare or assist in preparing federal tax returns must have a valid Preparer Tax Identification Number or PTIN. Paid preparers must sign and include their PTIN on the return.”
How do you know if someone is unqualified to prepare your taxes or is operating as a ‘ghost’?
Unscrupulous tax return preparers can use manipulation, social engineering, and confidence techniques for their benefit. However, it’s also possible that they don’t view themselves as being unethical or unjustified in offering services at a discounted rate in lieu of having proper registration or license to practice.
Here’s a list of practices that describe ghost preparers:
- Use ‘barter’ or ‘trade’ as payment method and refuse to sign the return. The fair market value of the preparation service is by definition earned income and reportable.
- Have no intention in reporting the income.
- Require payment in cash.
- Evade provision of a proper receipt in return for payment below fair market value.
- Lead one to believe that the payment is a ‘tip’ or ‘cash favor,’ or ‘gift in exchange for service’. All, by the way, are viewed by the IRS as obligatory income earned.
- ‘Favor for a favor’ is barter and trade defined as business activity.
Why should you avoid ghost preparers?
Tax preparation service is a legal profession taken very seriously by the IRS, Office of Professional Responsibility, and the Federal Tax Court. Tax preparers who take compensation of any kind or assist as volunteers are subjected to regulatory laws, ethical conduct, procedures, registration with the IRS and State, and meet yearly requirements of minimum certified education. Not signing a return is a red flag. You, not the ghost, are responsible for the outcome.
Beware of techniques that ghost preparers use that may get you more than a better refund but also a tax fraud investigation:
- Invent income to qualify their clients for tax credits.
- Claim fake deductions to boost up the refund or reduce final tax owed.
- Apply unsubstantiated claims for credits.
- Undercharge for service to substantiate reasons for refusing to sign the return.
- Direct your refund into their own bank account.
How to protect yourself
There are many options and alternatives for finding suitable help for completing your taxes. There’s no reason to take a chance on a ghost pretending or believing themselves to be qualified or experienced. It’s possible that they have lapsed or are missing PTIN# with the IRS, which indicates their tax knowledge could be very out of date.
Paying for qualified tax services does cost money, but a smart accountant can also save you money in tax payments. Either way, it’s better to have a clean tax filing that doesn’t raise flags with the IRS rather than use a ghost preparer who mishandles your tax documents.