If your tax preparer lies on your tax return, the IRS will hold you accountable for the error. By law, you’re responsible for your own tax return, even if you pay someone else to prepare it. It’s one of the major contradictions at the heart of the tax filing system. The good news is that if you’re a victim of tax preparer fraud, you can still correct the inaccuracies and get back on the good side of the IRS.
Learn more about tax resolution services from the attorneys at Wiggam Law.
Key Takeaways:
- False return – A tax return that has incorrect or fabricated information, e.g., exaggerated deductions or unreported income.
- Risk of a false return – penalties, interest, collection activities, and increased risk of an audit.
- Ghost preparer – A paid tax preparer who fails to sign or include a PTIN in a tax return they prepared.
- Accountability of a false return – The IRS holds a taxpayer accountable for any incorrect information on their tax return, even if they use a tax preparer.
- How to fix a false return – Amend your tax return, pay additional tax and penalties, or talk to a tax professional if you’re already receiving notices or being audited.
What It Means When a Tax Preparer Lies or Falsifies a Return
Most fraudulent tax returns involve falsifying information to lower the tax owed or increase a tax refund. There are many tactics that a tax preparer can use to manipulate a tax return, but here are the most common tactics:
- Claiming dependents you can’t legally claim to increase credits and deductions
- Inventing income, in most cases, self-employment, to create eligibility for refundable credits like the Earned Income Tax Credit.
- Inflating business expenses to reduce taxable income.
- Making up charitable contributions to increase itemized deductions.
- Hiding taxable income to lower the tax bill
- Claiming credits you don’t qualify for, to increase a tax refund
- Creating a fictitious business to claim refunds and refundable tax credits
To be clear, a legitimate tax professional can reduce your taxable income or tax liability in a completely legal way that doesn’t get you in trouble with the IRS. The fraud occurs because dishonest tax preparers fabricate or inflate your deductions to achieve these deductions.
Common Ghost Preparer Tactics and Red Flags
Ghost preparers use loopholes to lower your tax bill or inflate your refund, and then abandon you when the IRS comes asking questions. Here are common characteristics of ghost preparers to look out for to ensure you don’t end up ghosted:
- They refuse to sign the returns they prepare: By law, a paid tax preparer must include their IRS-issued PTIN on the returns they prepare. However, a ghost preparer will either print it out and ask you to sign it and mail it to the IRS. Or e-file on your behalf without alerting the IRS that they prepared the return.
- They base fees on refund size: Most ghost preparers prefer payment as part of the refund percentage because they use shady methods to inflate it.
- They may pressure you to sign incomplete or blank forms: By doing so, they can later add all the fabricated details without your knowledge.
- Request you to send money to pay on your behalf: This is a major red flag because tax payments should be made directly to the IRS.
- Insist on cash only: Ghost preparers prefer untraceable cash payments and no receipts to ensure they can’t be tied to them.
Why You Are Still Responsible For What Is On Your Return
When you sign a tax return, you are filing under penalty of perjury. This means that you’re taking an affirmative step of acknowledging that all the information in the return is true and correct to the best of your ability. Following this, even if a ghost preparer or tax preparer falsifies your tax return, you’re still legally responsible for its accuracy.
To be fair, the tax preparer isn’t off the hook either. If they signed their name on the return and added their PTIN, they may face tax preparer penalties and suffer a hit on their reputation. There are ways to report ghost preparers, too, and have them penalized for their misconduct. Unfortunately, making a report doesn’t automatically eliminate your responsibility to correct the return and settle any tax balance that results from this.
To protect yourself, always review your tax return before submitting or ensure you’re working with an honest tax professional. Most ghost preparers are careless because they don’t care about a reputation, just a fast buck. On the other hand, real professionals invest in their education and license, and they include their PTIN on every return; their reputation matters.
Potential Consequences of a False Return
Filing an inaccurate or false return has consequences, even if the mistakes were made by a tax preparer. Here are some of the potential consequences you might have to deal with:
- Additional tax liability: If the false return understated your tax debt, you’ll have to pay for the discrepancy.
- Interest charges: Besides the additional tax balance, you might have to pay the interest that it incurred; this interest compounds daily until the tax balance is paid in full.
- Penalties: The IRS may assess penalties for underpaying taxes or filing an inaccurate return. The agency may pursue criminal charges in extreme situations when it can prove fraud.
- Delayed or reduced refund: If the IRS notices the discrepancies, it may hold onto your tax refund to review your tax return further – it will reduce the tax refund to the correct amount if it was inflated.
- IRS audit: If your return has too many discrepancies, the IRS’s computer system may flag it, which increases your chance of being audited.
- Collection actions: If you don’t pay any additional tax you owe, the IRS may take collection actions such as bank levies, wage garnishments, federal tax liens, etc.
- Criminal consequences: If the IRS can prove that you willfully participated in the misconduct, you might face criminal prosecution. However, this is very rare.
Warning Signs That the IRS Has Flagged Your Return
The IRS will typically send a notice if the agency flags your return. Here are some of the notices you may receive and what they mean:
- CP05 notice: This means the IRS is verifying your income, tax credits, and income tax withholding. In other words, it’s reviewing your tax return.
- CP2000 notice: This informs you that the IRS found some mismatch between what you reported and what third parties, such as employers, banks, and brokers, reported on 1099s or W-2s.
- CP11 notice: The IRS has corrected your return, and you now owe additional tax.
- CP12 notice: The IRS corrected your return in your favor, and they owe you a refund.
- Letter 4883C or 5071C: The IRS saw something suspicious, and it needs you to verify your identity.
- CP75: The IRS needs documentation to verify credits you claimed, such as the Earned Income Credit (EIC).
What to Do After Discovering an Issue
The first thing you should do if you suspect your tax preparer/ghost preparer made a mistake is review your tax return to know what you’re up against. Here’s a simple checklist you can follow:
- Personal information: Confirm your name, SSN, address, filing status, and dependents. Ensure everything is correct.
- Income: Compare all the listed sources of income with your 1099s, W-2s, and other documents to ensure there’s no income that has been altered, added, or omitted.
- Tax credits and deductions: Confirm that you qualify for all credits and deductions claimed on your return.
- Business income and expenses: Confirm that you earned any reported self-employed or business income and that all the expenses are accurate.
- Bank account information: Confirm that the refund will be deposited into your bank account and not an unfamiliar account number.
- Refund amount: If your refund amount seems too good based on your income and tax situation, consider seeking a second opinion.
- Supporting forms and schedules: Check to see if there are attached forms and schedules that you don’t recognize, such as a Schedule C for a business you don’t own.
After going through your return, you’ll also need to check your IRS notices; the agency operates with strict deadlines that can be very hard to undo when missed, which can limit your resolution options. This is a lot, so you might actually consider working closely with a tax professional.
Here’s a guide on how to hire a legitimate tax professional, whether you’re filing a new return or fixing lies from a former tax preparer.
How to Correct a False or Inaccurate Return
If, after reviewing your returns, you find errors and inconsistencies, correcting them can help reduce additional interest and penalties. Here are the steps to follow to amend your return:
- Gather all your supporting documents: These include your wage statements, bank records, business documents, and receipts. Anything to show what should’ve been reported.
- Complete Form 1040-X: Explain what is changing and why; ensure all details are accurate and provide all the required explanations. You’ll need to add the previously reported numbers, show how amounts on your original return need to increase or decrease, and eventually show the correct amounts.
- Attach other necessary forms: For example, if you’re changing your itemized deductions, you’ll need a copy of Schedule A for that tax year.
- Submit your amendment: Ensure you submit depending on the tax year of the return you’re amending.
- Pay additional tax: If your amended return resulted in additional tax, pay it as soon as you can to reduce penalties and interest that it has been accruing.
But if the IRS has already frozen your refund, started an audit, or raised fraud concerns, you likely should not start with an amended return. In this situation, you want to respond directly to that notice, provide the requested documentation, or look into tax resolution options for the new tax liability.
If you’re not sure what your next step should be, talking to a tax attorney is a good place to start for guidance based on what exactly is wrong with your return and what the IRS notice says.
How to Respond If You’re Under Audit
If you’re already being audited, it’s time to pivot and focus on seeking help with an IRS audit. Check your notices, identify the tax year, items being questioned, deadlines, and documents requested.
Next, reach out to a tax attorney who can represent you during an audit. They can help determine exactly what documentation you need to send, how to explain to the IRS what went wrong, and the best way to avoid audit penalties.
If you suspect tax preparer fraud, legal representation is even more important.
How We Can Help At Wiggam Law
Dealing with the aftermath of a ghost preparer or any preparer who lies on your return can be very overwhelming. Working with a real tax professional can help lighten that burden. Here’s what to expect when you come to us:
- We assess the extent of the problem: We review your tax return to determine the mistakes they made, the supporting documents they used, any false deductions and credits, etc.
- We share your legal options: This depends on your case; it could involve exploring tax relief, amending your return, or other options, depending on the notices you’ve received from the IRS and the info on your tax return.
- Respond to IRS notices: If the IRS has already sent you notices, we also respond with supporting documents to ensure the agency doesn’t escalate the issue.
- Represent you if you’re being audited: We ensure your rights as a taxpayer are respected, help submit the right documents, and negotiate with the IRS for the best possible outcome.
- Handle communication with the IRS: We take over the communications with the IRS to relieve you of the stress of corresponding with the IRS agents and the long hold times on the phone.
How to Avoid Similar Issues in the Future
Once you’ve addressed this year’s return, you’ll want to take steps to avoid issues moving forward. Here are some tips to remember:
- When choosing a tax preparer, ensure that they have a valid PTIN and sign returns as a paid tax preparer.
- Never sign a blank or incomplete return – the preparer may alter it after you sign and then file it without your consent.
- Take the time to review your return in full before filing it, and don’t be afraid to ask questions if you don’t recognize or understand something.
- Be wary of tax preparers who guarantee huge refunds, are cagey about answering questions, or claim to know tax filing secrets that other professionals don’t know.
Frequently Asked Questions (FAQs)
Here are the answers to the top questions we’ve received on a tax preparer lying on tax returns:
How can I report a tax preparer for fraud?
If a tax preparer falsified your return, filed without your consent, altered your return after having you sign it, did not sign as a paid preparer, or otherwise engaged in misconduct, you can report them using Form 14157 and Form 14157-A. Ensure to include all supporting documents, payment details, and any correspondence between the two of you.
Am I responsible if my tax preparer lied on my return?
Yes, the IRS holds taxpayers responsible for the accuracy of their returns, even if they hire a paid preparer. The IRS expects you to verify the details of your tax return and ensure everything is true and accurate before signing and submitting your return.
What should I do if I find false information on my return?
Amend your tax return if the IRS hasn’t taken any action yet or sent you notices. This includes filing your correct return, with supporting documents and explanations on why you need to change the numbers. It may result in additional tax, which you’ll need to settle along with any penalties and interest it has accrued.
What if my tax preparer did not sign my return?
It means they were a ghost preparer. Ghost preparers accept payment for tax preparation but do not sign the return or provide a PTIN to avoid taking accountability or answering any questions that the IRS might have about your tax return. In most cases, they do this because they fabricate numbers and information to manipulate your return to their favor.
Do I have to pay back my refund if the preparer claimed false credits?
Yes, if the IRS discovers that your refund was increased because your return claimed tax credits you weren’t eligible for, you have to repay the portion of the refund that stemmed from the false credits. You may also owe interest and penalties for the additional tax due, and the IRS may ban you from claiming certain credits in the future.
Should I amend my return right away?
Not always. If the IRS has already reached out to you about errors in the return, frozen your refund, or started to audit you, you’re better off engaging a tax professional for better tax resolution options. And even without incoming notices, you should always review your tax return first to confirm if it has errors.
Can a tax attorney help me if a tax preparer lied?
A tax attorney or other qualified tax professional may review your return, identify inaccuracies, communicate with the IRS for you, correct inaccurate filings, and help you pursue the right tax resolution option for your situation.
Get Relief From Tax Preparer Misconduct Now
A false tax return can cause significant problems for a taxpayer, but the quicker you act, the more options you have. The team at Wiggam Law is here to help you understand your options, provide help with incorrect tax returns, and work towards a resolution.
Learn more about our audit representation services by contacting us online or calling us at 404-609-1300.
Resources:
https://www.irs.gov/pub/irs-pdf/f14157.pdf
https://www.irs.gov/payments/penalty-relief-for-reasonable-cause
https://www.irs.gov/help/report-fraud/report-a-tax-return-preparer
https://www.taxpayeradvocate.irs.gov/get-help/filing-returns/tax-return-preparer-fraud/
https://www.irs.gov/help/report-fraud/report-tax-fraud-a-scam-or-law-violation
https://www.uspis.gov/news/scam-article/fraudulent-tax-returns-and-refunds
