How to Avoid Tax Preparation Scams

This week, the IRS announced that it in 2011 it would require that all paid tax preparers register with the IRS and include an ID number on the returns they prepare. They would also have to pass a competency exam within three years and have a continuing education component.

The rules won’t take effect this year so if you are using a tax preparer, you still need to be on your toes. Some of the horror stories that accompany many of the mainstream media reports could usually be averted if the taxpayer reviewed their prepared tax return.

Some other red flags:

  • Don’t work with a tax preparer that doesn’t sign the tax return. You are responsible for paying penalties and interest if the return is wrong but a paid preparer should always fill out the last section of the form (it includes a signature, firm information, their SSN or PTIN and their phone number).
  • Don’t work with a tax preparer that promises a specific dollar amount tax rebate. They don’t know your tax situation so if they make any promises, walk away.
  • Don’t use a preparer whose fee is based on the refund. It should be based on the complexity of your return.
  • Don’t use someone you can’t get ahold of in a year (or seven) in case the IRS has any questions. Check to see how long they’ve been preparing returns.
  • Shop around. You might run into one unscrupulous tax preparer but if you talk to five, you’ll get a better idea of what is fair and to be expected.

Remember to use your innate fraud detector too – if it sounds too good to be true, it probably is.

Jim writes about personal finance at Bargaineering.com.