5 Warning Signs of a Dishonest Tax Preparer

Potential clients often contact my office after realizing that their tax preparer made errors or engaged in conduct that did not comply with IRS regulations. In many cases, the taxpayer had no knowledge of the preparer’s misconduct, but is now responsible for repaying significant amounts of tax, penalties, and interest. The IRS may conduct an audit or other enforcement action. As a tax attorney, I work with clients to navigate these proceedings, develop strategies to address IRS or Tax Court actions, and seek to limit potential liability wherever possible. If you find yourself in this situation, it is important to contact my office promptly to discuss your options and protect your interests.

While some situations require immediate legal guidance, it is often possible to prevent serious problems by carefully selecting a qualified and compliant tax preparer from the outset. Understanding the indicators of a preparer’s non-compliant behavior can help you, the taxpayer, make informed decisions, reduce the risk of errors or audits, and avoid exposure to penalties before legal intervention becomes necessary. If a preparer is offering a tax refund that sounds “too good to be true,” then that is a sign that they may be dishonest.

The following are some key warning signs to watch for when evaluating a tax preparation professional.

1.     They Will Not Sign Your Return

The IRS requires paid preparers to sign the return and include their Preparer Tax Identification Number (PTIN). Preparers who avoid signing, often called “ghost preparers,” are a major red flag. Never sign a blank or incomplete return and avoid anyone who refuses to include their PTIN.

2.     Their Fee Is Based on Your Refund Size

Preparers should charge based on the complexity of your return, not the size of your refund. Refund-based fees create incentives to inflate credits or deductions, which can later lead to audits or penalties that fall on the taxpayer, not the preparer.

3.     They Request That Your Refund Be Sent to Their Bank Account

This is a serious violation. Under Circular 230, the Treasury Regulations governing practice before the IRS, and federal law, a preparer cannot negotiate or direct a client’s tax refund into any account they control. Proposed updates to these rules also include prepaid cards, digital transfers, and mobile payments. If your preparer wants your refund routed to them, even temporarily, that should be a deal-breaker.

4.     They Offer Contingency Fees on Return Preparation

With limited exceptions, contingency fees are prohibited for IRS matters. Some preparers offer a percentage of “what they can save you” on the return. This approach can lead to errors or aggressive claims on the return, increasing your risk of audits and penalties.

5.     They Promise Big Refunds Before Reviewing Your Information

A responsible preparer will ask questions, request records, and explain the positions taken on your return. Anyone who guarantees large refunds without reviewing your documents is not preparing returns responsibly.

 If any of these red flags sound familiar, you may want to consider having a consultation with a tax attorney to proactively discuss your situation and the potential liability you may be facing. For more information about choosing a tax preparer, see Part 2: How to Protect Yourself When Choosing a Tax Preparer.