With tax return season upon us, scammer season is also in full swing. How can you be sure you aren't being scammed when you have somebody prepare your taxes?
Scammers are everywhere. In fact, the Marine Corps just put a tax prep company outside the Camp Pendleton gate on the off-limits list.
The "Go Navy Tax Service" company was put off limits after the Corps investigated complaints by several Marines. According to Google reviews of the company, it would lure in young Marines with free trolley passes and promises of free tax preparation. Employees would then use high-pressure sales tactics to get Marines to deposit their refunds into various financial products, such as tax-free annuities or life insurance products. Employees would also convince the Marines sign up for allotments to these accounts.
Of course, the payouts were nothing like promised, and many Marines saw their money disappear.
No criminal charges have been filed, and the company has admitted no wrongdoing, but its website now says it is "unable to provide tax preparation services this season."
This is nothing new. All of us have stories of places outside the main gate of almost every military installation we've been on that prey on young military members. A big difference these days is that scammers exist everywhere via the internet. How can you be safe?
Beware of Scams. Use Common Sense
This year, the Internal Revenue Service is warning taxpayers to avoid unethical tax preparers, known as ghost preparers.
According to the IRS' website, by law, anyone who is paid to prepare or assist in preparing federal tax returns must have a valid Preparer Tax Identification Number. Paid preparers must sign the return and include their number.
But "ghost" preparers don't sign the return. Instead, they print the return without including their name or ID number, and tell you to sign and mail it to the IRS.
These people will charge you a percentage of your refund to complete the return. Therefore, much of the data on the return could be wrong as the preparer inflates a lot of the numbers to get a larger refund -- and therefore a larger fee.
Since they don't include their name and tax preparer ID number, if the IRS audits your return and finds the errors, you are on the hook for any back taxes and penalties. Good luck getting any help from the person who did your taxes. They usually disappear pretty quickly. That's why the IRS calls them "ghost preparers."
The IRS lists other things to watch for that may tip you off to a shady tax preparer:
- Requiring payment in cash only, and not providing a receipt.
- Inventing income to qualify you for tax credits or claiming fake deductions to boost refunds.
- Depositing refunds into their own bank account rather than your account.
- Trying to sell you an investment to deposit your refund into, often promising large investment returns.
- Having you sign a blank return or not giving you a copy of your return after it is filed.
How to Avoid Problems
The IRS reminds you to always review everything you sign, and to ask as many questions as you can. It's especially important to review the routing and bank account number on the completed tax return to make sure your refund is going to your bank account, not the preparer's account.
You should always avoid tax preparers who claim they can get you a much larger refund than other preparers. Also, avoid those who base their fee on a percentage of the refund.
Some common sense hints include:
- Check the person's credentials. Only attorneys, CPAs and enrolled agents can represent you with the IRS in all matters, including audits, collections and appeals. Other return preparers may represent you only for audits of returns they prepared.
- Find out whether the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
- Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.
Friends and co-workers are also a good resource. Ask them who they used to prepare their taxes, and whether they would go back to that person or company.
Remember, no matter who does your taxes, you are the one who is ultimately responsible for everything on the return. You will be the one the IRS comes looking for if there is anything wrong. Therefore, you want to make sure the person or company you hire is reputable.
Finding a good tax preparer may seem difficult at first, but luckily we have put together some resources to help you.
There are several free and discounted tax resources available to military members, veterans and retirees. Check out our listing of free and discounted tax preparation resources. You can also get tax assistance at many local libraries, or through the AARP.
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