Even the most loyal tax clients can be vulnerable to advertisements or solicitations that promise to save them money on tax preparation services. After all, who wants to pay more for a service than they have to?
But unfortunately, many of these “too good to be true” ads are just that—and for many victims, by the time they’ve realized they’ve fallen for a scam, they’re out money, time, and possibly even goodwill with the IRS. Learn about a few of the most common tax scams and how you can prepare (and protect) your clients.
Beware the Word “Free”
One tax prep company was recently put on Camp Pendleton’s “Do Not Admit” list after allegations that it used high-pressure sales tactics (like the promise of “free” tax return preparation) to entice young Marines to deposit their tax refunds into high-fee, low-return financial products.
While the company has not admitted any wrongdoing, this sort of scam illustrates the old adage, “you get what you pay for.” Taxpayers should view any promise of free tax preparation services as a red flag, as these services often come with high-fee products or another undisclosed “catch.”
Watch Out for Ghost Preparers
Everyone and anyone who is paid to prepare and file a federal tax return on behalf of another person is required to have a valid Preparer Tax Identification Number (PTIN). But not all those who charge to prepare tax returns have (or use) this number; instead, these “ghost preparers” will return the tax return to the taxpayer to sign and submit to the IRS.
This leaves the taxpayer, not the tax preparer, on the hook for any questionable credits or deductions taken; and because these ghost preparers often charge a percentage of the taxpayer’s total refund for their services, they have a vested interest in obtaining the highest refund amount possible (through whatever means possible).
Ensure that all your clients know what a PTIN is, how it’s obtained, and why it’s so important for this number to be included on their tax return unless they’re preparing it themselves.