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IRS Small Business/Self-Employed Division Issues Tax Guidance for Taxpayers Who Allege Return Preparer Fraud

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    In recent years, allegations of tax return preparer fraud have seemed to steadily increase. When tax return preparers pray on the trust of well-meaning taxpayers, all parties can end up facing serious consequences. The tax preparer can face an array of penalties up to and including being barred from preparing taxes, a prison sentence, and monetary fines. The taxpayer can also face penalties, inconvenience, and the costs of fixing one’s previous filings due to return preparer fraud and risks criminal prosecution if complicit in the tax preparer’s actions.

    And yet, tax return preparers face financial and competitive pressures that may motivate them to promise more than they can deliver. For instances, it is not uncommon to hear tax preparers promise potential clients large refunds. However, the amount of one’s tax refund is essentially a function of their financial practices for the previous tax years. If the taxpayer failed to elect an adequate withholding or engaged in other financial activities or planning likely to generate a large tax bill, the tax preparer may have to choose between following the law and disappointing a client. Far too often, it appears that some tax preparers choose the former and create major tax issues for their client. This creates problems not only for taxpayers but also for honest tax return preparers.

    IRS Guidance for Tax Preparer Fraud Whistleblowers

    The IRS tax preparer misconduct whistleblower guidance memorandum, SBSE-25-0117-0005, applies when a taxpayer alleges that preparer engaged in improper acts or other misconduct after December 31, 2015. A separate set of procedures applies for allegations occurring on or prior to December 31, 2015.

    In general, the memorandum strengthens existing procedures in place when tax preparer misconduct is claimed by a taxpayer. For one, the memorandum continues to identify “ghost preparers,” tax preparers who do not sign the return or identify themselves in any manner, as a continuing problem. The rules set forth the steps a taxpayer must follow to identify a “ghost preparer.” Among other steps and inquiries, when dealing with a potential preparer misconduct scenario the taxpayer typically must submit:

    • Signed tax return as intended to be filed by the taxpayer
    • Form 14157 – First and last name of preparer and business address.
    • Form 14157-A – Signed under penalties of perjury.
    • Documentation showing 3rd party presented him/herself as a preparer.
    • Documentation showing interaction between taxpayer and tax return preparer.

    The guidance also identifies and discusses several common instances of return preparer misconduct or potential fraud. The document identifies the following as common schemes by tax preparers:

    • Misdirecting a tax refund to an account under the control of the preparer.
    • Filing an individual’s taxes without authorization.
    • Altering tax return information to generate fraudulent tax refunds or to reduce tax liability.

    While the memorandum does set forth a number of examples for taxpayers, the situations described therein may not align with the facts in your case. It is wise to seek the guidance of a criminal tax defense lawyer before taking any substantive action or contacting the IRS.

    What if I’m a Tax Preparer Being Blamed for My Client’s Errors?

    Any time unscrupulous individuals or professionals engage in misconduct or potential fraud it can create a certain sense of malaise in the public’s view of the profession. In at least some instances honest, hardworking tax preparers will be swept up in allegations by taxpayers. For tax preparers, like accountants and CPAs, who make their living by providing tax and financial guidance, allegations of this type are extremely serious and threaten the fundamentals of the business.

    Tax preparers who face serious allegations regarding misconduct or fraud can suffer an array of penalties. If licensed, the preparer may be subject to suspension, loss of license, or other disciplinary action including a potential civil injunction which prevents them from preparing returns in the future. If the return preparer engaged in a concerted scheme or conspired with the taxpayer to defraud the IRS and United States government, he or she may face criminal tax charges that could include the possibility of a federal prison sentence.

    Our Criminal Tax Defense Attorneys Can Answer Questions About Return Preparer Misconduct and Fraud

    At the Tax Law Offices of David W. Klasing, our Criminal Tax Defense Lawyers, CPAs and EAs take a balanced approach to the law and recognize that there are at least two sides to every store. If you are a taxpayer affected by return preparer misconduct, our team may be able to work with you to mitigate the consequences of tax preparer misconduct. We also recognize that honest preparers can get caught-up in a difficult situation when the client does not like the result. Our team may also be able to fight for accountants, CPAs, EAs and other tax professionals facing allegations of misconduct. To schedule a confidential reduced rate consultation at our Los Angeles or Irvine tax law firm, please call 800-681-1295 or schedule online today.


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