How to tell if your tax preparer is a crook

You want to save money on the cost of preparing your taxes, so you use a guy your friend recommends. The tax preparer has a reputation for getting people big refunds.

You’re excited because you’ve got some bills you need to pay off and you’ve been promising yourself and your family that this is the year you’ll take a five-star vacation.

During your session, you tell the guy you donated some stuff to charity. You’re not sure how much the items were worth. The guy puts down a value that is definitely inflated. Other deductions are also overstated. You express concern.

“Everybody does it,” the tax guy assures you.

At the end of the appointment, you’re thrilled with the size of the refund he says you’ll get. Then the preparer says that, because he’s getting you back so much money, your fee will be a percentage of the refund. You think that’s only fair. You sign the return.

Your tax preparer is a crook.

This scenario is merely hypothetical. But the IRS routinely releases examples of cases of real-life investigations that have led to criminal prosecution and sentences for tax-prep fraud and abuse. Here are some recent examples:

• Two partners in Mo’ Money Taxes, which operated three locations in the Richmond, Virginia, area, admitted to inflating tax credits to generate larger refunds for customers. The men were sentenced to prison and ordered to pay restitution of $549,000.

• A Missouri tax preparer was sentenced to two years in prison for fraud and required to pay $291,041 in restitution to his victims. He took clients’ tax deposits but instead of forwarding the payments to the IRS, he used the money for his personal benefit.

• A Connecticut man was sentenced to 12 months in prison for filing hundreds of returns with false information costing the government more than $2.2 million. Many of the returns he filed were for his fellow church members.

• Two Georgia men were sentenced and ordered to pay restitution of $3.5 million to the IRS. They were accused of making up fake unprofitable businesses as a way to generate fraudulent deductions for their clients and, as a result, larger refunds for customers.

With just about a month left to the tax-filing deadline (It’s April 18 this year, by the way), the National Consumers League has issued an alert about tax-prep scams.

While the vast majority of preparers are honest, the NCL says to look for the following red flags that can signal your tax preparer is dishonest:

• The person doesn’t have a Preparer Tax Identification Number, or PTIN. All paid preparers are required to register with the IRS and get a PTIN, which should be included on your tax return.

To check — and you should — that your preparer is legit, go to irs.gov and search for “Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.”

• You are asked to sign a blank or partially filled-out tax return. Doing your taxes involves a seemingly endless list of boxes and lines. So it may sound reasonable if your tax preparer says, “This is going to take a lot of time, so just sign your return and I’ll fill in the rest of the information later.” Don’t do it.

• You aren’t asked to provide a W-2 or other proof of your earnings, deductions or credits. And certainly, you shouldn’t agree to any false documentation, no matter how desperate you are for a refund.

• Your preparation fee is based on a percentage of your refund. This can lead to a preparer inflating deductions or credits.

• A preparer asks you to pay him or her any taxes or penalties owed.

If any of these red flags hit home, report the preparer to the IRS using Form 14157. Also file a complaint at Fraud.org, a site run by the NCL.

“No matter who prepares your taxes for you — whether it’s a multibillion-dollar tax software company, a trusted accountant or a fraudster — it’s the taxpayer who is ultimately responsible for what is on the return,” said John Breyault, NCL vice president for public policy, telecommunications and fraud. “Unfortunately, too many consumers trust tax preparers they shouldn’t. Then, when the IRS comes knocking, it’s the unfortunate taxpayer who’s on the hook for fees and penalties, not the scammer.”

Breyault said fraudsters often pop up in storefronts in underserved areas around tax time and then disappear just as quickly.

Be careful and choose your preparer wisely or suffer the expensive consequences.