In a recent bulletin, IR-2023-59, the Internal Revenue Service (IRS) put out a warning highlighting the risks associated with shady tax preparers. The IRS cautions that the use of unscrupulous preparers could significantly heighten the risk of audits for taxpayers. This publicly issued warning is the latest in their annual “Dirty Dozen” series of tax scam alerts.
Several “warning signs” were given by the IRS for taxpayers to be wary of. One particularly notable highlight was regarding tax preparers who set their fees based on the size of the refunds they enable their clients to obtain. Such modus operandi not only presents an ethical dilemma but may also encourage potentially harmful practices such as falsifying amounts or details on the tax returns to inflate refunds. The IRS has previously identified such practices as contributory to tax fraud.
While the IRS permits legitimate tax preparers to charge fees based on a percentage of the refund obtained, it warns that unethical preparers may use this payment model as a mechanism to engage in fraudulent behaviour. Such unethical behaviour can not only lead to inaccurate tax returns, but also increased scrutiny and potential audits from the IRS. Dependent on the severity and extent of the false claims, this could subsequently result in significant fines or even criminal charges for both the taxpayer and the tax preparer.
The IRS strongly encourages taxpayers to choose their tax preparers wisely and remain vigilant for any signs of shady practices. Engaging to receive service from a reputable tax professional could help significantly in mitigating risks, ensuring accuracy in filings, and maintaining compliance with tax laws.
In the bulletin, the IRS also provided a helpful list of tips for choosing a tax preparer wisely, and how to report suspected fraudulent activity. Getting the services of a trustworthy and competent tax preparer not only ensures compliance and proper filing of tax returns, but also lessens the chances of facing issues with the IRS in the future.