Ghost tax preparers and other scams: Key protection strategies

Sadly, there are unscrupulous people in this world who simply make money by cheating others. According to the IRS and the Better Business Bureau, this is the time of year when the ghost tax preparers set up their black-market operations. These pop-up enterprises tend to spring up overnight in short-term rental locations. They are literally here today and gone tomorrow.^1,2

In 2006, the IRS created the Preparer Tax Identification Number (PTIN). By law, anyone who is paid to prepare taxes must have a PTIN.³ All legitimate tax preparation specialists are required to sign the tax return and list their PTIN on the tax forms if they receive any payment for their services.^1,2,4

Suspect a ghost?

Ghosts are sneaky souls. They often reel folks in with false promises of large or quick refunds. Another red flag is basing the preparation fee on a percentage of the anticipated refund. Ghost preparers often claim false deductions or invent income that allows the client to qualify for inappropriate tax credits. These practices create artificially large and inaccurate refund anticipations among unsuspecting clients. Additional tactics include only accepting cash payments for filling out the forms, never providing a receipt for services, and directing the client’s refund into their own bank account, with the promise that it will be dispersed at a later date.^1,2 Talk about slimy and illegal business practices!

Getting away with the scam

Ghosts prepare the return but never sign the form, much less add a PTIN that they do not have. Instead, they ask the client to sign the form. Once submitted, the IRS must assume the taxpayer filed the return on their own. This is where it gets serious. Now the taxpayer is liable for any errors or omissions and is responsible for any underpayments or penalties.^1,2

Checking qualifications and the business history

Before turning any personal information over, take the time to check the preparer’s credentials and qualifications. The Better Business Bureau is a great place to start. Check for bad reviews or a history of complaints. It is important to know that your preparer will be around if there are any questions after you file your return. Fly-by-night preparers will not be anywhere around after this year’s filing deadline.² Note that the IRS has extended the filing deadline to May 17, but estimated quarterly tax payments were still due April 15.

The IRS also has a helpful online tool that verifies a preparer’s specific qualifications. The list includes all PTIN holders.⁴ It is also possible to check licensure status and disciplinary actions for credentialed preparers. For CPAs, contact the State Board of Accountancy. The State Bar Association is the source for information about an attorney.²

Fees, electronic filing, supporting documents

There are additional things to consider. Understand the preparer’s fee schedule. Look for set fees. Beware of anyone who claims up front that they will be able to get a bigger refund or that their fee is a percentage of an anticipated refund. Make sure the tax preparer can submit the return electronically, and double check that they agree to sign the return, either the electronic submission or a paper return. While forms can be mailed to the IRS, the IRS is encouraging electronic filing. The agency claims E filing and having any refunds deposited directly into your personal bank is the fastest way to get money back.⁴

Never share any tax information with a preparer until all of the above questions are answered. Once you make your selection, it is important to provide copies of all tax documents, receipts, social security numbers, bank account and routing numbers, and all other pertinent information.⁴ Keep all original records in a safe place. The preparer can work with copies.

Even if you were paid cash, or never received a 1099, all income must be declared. Do not assume that your tax specialist understands dental hygiene licensure laws. Make sure that they understand clinical duties performed under the supervision of a licensed dentist.^5,6 This important tidbit will direct how any clinical income, paid as an independent contractor, is reported on the return. Other articles cover this hot topic in depth.

Before filing—review, double check entries, then sign

Rule number one: Never sign a blank return. It’s as dangerous as signing a blank check. Rule number two: Review the entire return for accuracy. Make sure all questions are answered, and all bank account and routing numbers are for your account only. Rule number three: Make sure the preparer signs the return and includes their PTIN. Rule number four: Always secure a final copy of the signed return. Documentation is second nature to most of us. Having copies of everything comes in handy if there is ever a question about your taxes.⁴

Other common tax scams

If there is ever an issue about your return or a question about back taxes, the initial contact from the IRS is always by standard mail. The IRS does not request personal or financial information from taxpayers by email, text message, or social media. After the initial mail contact, there can be a legitimate phone conversation with an actual IRS employee.⁷

Scammers work in other ways. They impersonate IRS agents and call taxpayers directly. These con artists often use fake names and badge numbers. Scammers claim the taxpayer owes the government taxes and pressure people to act quickly, often implying an arrest or fines. They demand immediate payment with a prepaid debit card, wire transfer, or another nontraditional payment method. A variation involves scammers saying a tax refund is available. They claim to need personal information to process a phony payment. Scammers also target college students by claiming a “federal student tax” has not been paid. The goal is to get the victim to act quickly before they have an opportunity to think. Con artists also follow up with bogus email messages that use the IRS logo and official-sounding language. ⁷

In 2017 the IRS began allowing four debt collection contractors to collect overdue taxes for the government. This is only used after the IRS has made multiple attempts over the years to collect an unpaid debt.^8,9 While owing the government taxes is uncomfortable, there are specific ways to resolve the debts that do not involve scams.

Identity theft and email phishing

A different kind of scam occurs when a con artist uses a stolen social security number to file a fraudulent tax return and illegally collects the refund. This type of theft usually goes unnoticed until the legitimate taxpayer tries to file their return. The unsuspecting taxpayer usually finds out when the IRS sends a written notice that more than one return has been filed, or questions wages from a fake employer.¹⁰

Email phishing is on the upswing. While most fraudulent emails just don’t look right, some are cleverly constructed and appear legitimate. Trust your instincts. If it feels phony or fishy, it probably is. Just like the scamming phone calls, the con man hopes their pressure tactics will work and force the victim to act in haste. If there is any doubt in your mind, don’t click on any link or open any document. Scammers are looking for access to personal information, credit card accounts, social security numbers, banking information, and PIN numbers. Remember, the government is not going to initiate a first contact by email. The same holds true for a legitimate bank, credit card company, online seller, payment processor, or other financial institution.¹⁰ It is easy to check the email source by right clicking your mouse over the sender’s email address. A shocking number of phishing emails are sent every day.

Additional protection strategies

File your tax return early before anyone can file a fake return using your name.¹⁰ At the end of January 2021, taxpayers can voluntarily apply for an IRS Identity Protection PIN (IP PIN). This is a new way to create another firewall between you and a con man. Taxpayers must pass a rigorous identity verification process to qualify for a unique six-digit number that is only valid for one year. The IP PIN prevents a scam artist from using your social security number to file a fraudulent tax return. Taxpayers must obtain a new number every January.¹¹

There are three ways to apply for an IRS IP PIN: online, completing Form 15227, or having an in-person meeting at a taxpayer assistance center. Each application process has specific criteria. Once granted, the correct IP PIN must be included on any return, either electronically or paper. If the number is missing or incorrect, the IRS will reject or delay the return.^11,12

Finally, if you suspect any type of fraud, or feel that your tax preparer was not on the up and up, contact the IRS. The two-page IRS Form 14157 is a straightforward, step-by-step document with specific details about how to report fraud or misconduct.⁴

Here’s hoping that the only ghosts or scary guys that cross your path this coming year are dressed up for a neighborhood Halloween party! 

References

1. BBB Tip: Avoid being “ghosted” by your tax preparer. https://www.bbb.org/article/news-releases/19493-bbb-tip-avoid-being-ghosted-by-your-tax-preparer. March 3, 2020. Accessed January 2, 2021.
2. IRS: Don’t be a victim of ghost tax return preparers. https://www.irs.gov/newsroom/irs-dont-be-victim-to-ghost-tax-return-preparers. Page last reviewed or updated November 24, 2020. Accessed January 2, 2021.
3. Verify the status of an enrolled agent. https://www.irs.gov/tax-professionals/verify-the-status-of-an-enrolled-agent. Page last reviewed or updated September 23, 2020. Accessed January 2, 2021.
4. Ten tips for choosing a tax preparer. https://www.irs.gov/newsroom/ten-tips-for-choosing-a-tax-preparer. Page last reviewed or updated July 8, 2020. Accessed January 3, 2021.
5. Independent contractor (self-employed) or employee? https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee. Page last reviewed or updated November 9, 2020. Accessed January 3, 2021.
6. Understanding employee vs. contractor designation. https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation. Page last reviewed or updated July 8, 2020. Accessed January 3, 2021.
7. BBB tip: Tax scams. https://www.bbb.org/article/tips/13995-bbb-tip-tax-scams. March 3, 2020. Accessed January 2, 2021.
8. IRS fraud calls may be the new trend in tax scams. https://www.bbb.org/article/news-releases/17043-irs-fraud-calls-may-be-the-new-trend-in-tax-scams. April 13, 2018. Accessed January 3, 2021.
9. Private debt collection. https://www.irs.gov/businesses/small-businesses-self-employed/private-debt-collection. Page last reviewed or updated September 23, 2020. Accessed January 3, 2020.
10. Scam alert: Stolen tax return? Watch out for tax ID theft. https://www.bbb.org/article/scams/16949-bbb-tip-tax-identity-theft. January 31, 2020. Accessed January 3, 2021.
11. Get an Identity Protection PIN (IP PIN). https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin. Page last reviewed or updated December 30, 2020. Accessed January 3, 2021.
12.  Identity Protection PIN program will soon be available to taxpayers nationwide. https://www.irs.gov/newsroom/identity-protection-pin-program-will-soon-be-available-to-taxpayers-nationwide. Page last reviewed or updated December 14, 2020. Accessed January 2, 2021.

ANNE NUGENT GUIGNON, MPH, RDH, CSP, a visionary thinker, has received numerous accolades over four decades for mentoring, research, and guiding her profession.  As an international speaker and prolific author, Anne focuses is on the oral microbiome, erosion, hypersensitivity, salivary dysfunction, ergonomics, and employee law issues. She may be contacted at [email protected].