IRS warns about tax preparer fraud

updated 8:40 a.m. ET Feb. 4, 2009

WASHINGTON - Choose carefully when you pick someone to do your taxes.

The Internal Revenue Service is warning people that they — not the tax preparer — are responsible if a fraudulent return is submitted under their name, even if they were unaware of the fraud. And with that responsibility comes the cost of penalties and interest on any additional taxes that may be due.

Fraudulent returns might include such things as inflated personal or business deductions, improper deductions, unallowable credits or too many exemptions.

The agency is quick to acknowledge that most tax preparers are honest. But there are some unscrupulous providers out there.

In fiscal 2008, 214 investigations of suspected tax-preparer fraud were initiated, according to the IRS Criminal Investigation Division. There were 142 indictments or criminal informations brought, and 124 tax preparers were sentenced — an 81.5 percent incarceration rate, according to the IRS. Those who were convicted or pleaded guilty served an average 18 months in prison, home confinement, electronic monitoring or a combination.

Among the cases described by the IRS:

_In Houston, a tax preparer was sentenced to 21 months in prison and ordered to pay $175,000 in restitution after being convicted of manipulating a return to make it appear that a taxpayer was due a refund of more than $4,000. The actual refund due was $26.

_A New Jersey preparer got a six-year sentence and was fined $100,000 after being convicted of filing fraudulent federal returns. The government said its loss as a result of the fraud was more than $2.5 million.

_A North Carolina preparer was sentenced to 70 months in prison after pleading guilty to charges he conspired to defraud the government by filing false returns and evading his own personal income taxes. He was ordered to pay $6 million in restitution — about the same total as the fraudulent refunds he was charged with claiming for clients.

In addition, the IRS since 2001 has obtained permanent injunctions against more than 365 "abusive tax scheme promoters and abusive return preparers."

"We're always on the lookout for new schemes," said Debbie King, deputy director of refund crimes for the IRS Criminal Investigation Division.

King said the IRS looks for suspicious patterns in a preparer's returns. Is the same type of deduction claimed for the exact same dollar amount in multiple returns? Is there a higher percentage of people claiming a certain type of deduction than the general population at large?

When choosing a tax-preparer, someone should be "as careful as they would be choosing a doctor or lawyer," the IRS says.

That means asking questions: What are the preparer's credentials and affiliations? Will he or she be in business long enough to answer questions after the return is filed? How are fees computed? Avoid preparers who base their fee on a percentage of the refund, the IRS advises. And don't sign a blank return.

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