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Ghost Preparers Targeting Taxpayers

What is a “Ghost” Preparer?

We may have put Halloween back in its crypt, but the Internal Revenue Service says that taxpayers need to worry about “‘ghost’ preparers” who promise huge tax refund payouts.

The agency says in its press release that these incorporeal hucksters avoid digitally signing returns they prepare by resorting to somewhat analogue means: “Unscrupulous ghost preparers will print the return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost will prepare but refuse to digitally sign as the paid preparer.”

This practice is problematic for a couple reasons.

First, the IRS reminds us that it’s the law: “Anyone who is paid to prepare or assists in preparing federal tax returns must have a valid Preparer Tax Identification Number, or PTIN. Paid preparers must sign and include their PTIN on the return.” As a tax professional, you know all too well the requirements placed upon you by a number of laws.

Second, ghost preparers open their “clients” up to risk for a bigger payday: “Not signing a return is a red flag that the paid preparer may be looking to make a fast buck by promising a big refund or charging fees based on the size of the refund.” That fact is best illustrated by the concise list the IRS put together of things they’ve seen ghost preparers do:

  • Require payment in cash only and not provide a receipt.
  • Invent income to qualify their clients for tax credits.
  • Claim fake deductions to boost the size of the refund.
  • Direct refunds into their bank account, not the taxpayer’s bank account.
  • As you can see, the grift runs the gamut—from inflating income to simply stealing money from unsuspecting taxpayers.

    Why is it important to communicate these risks to prospective clients?

    I’m willing to bet that a prospective client has sat across from you and said something like, “The preparer down the street promised I’d get a huge refund.” In addition to helping reduce the incidence of tax fraud, warning the taxpayer about the risks posed by unscrupulous preparers—whether they count as a “ghost” or not—can also help establish your authority as an expert.

    Why would I want to be in the IRS Directory of Federal Tax Return Preparers?

    The IRS regularly advises taxpayers to use the Directory of Federal Tax Return Preparers to find a preparer. As an official resource provided by the IRS, being in the directory is one way to market your tax practice.

    To be included in the directory, tax professionals need to earn certain professional credentials—attorneys, CPAs, enrolled agents, enrolled actuaries, and enrolled retirement plan agents—or complete the Annual Filing Season Program (AFSP).

    Source: IR-2020-17

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