Just read a story about a tax preparer in FL that was sentenced to 2 years in prison for preparing over 1000 false tax returns. Without the knowledge of any of the clients, he claimed over $3500 in fake tax credits on each of their returns. His marketing consisted of guaranteeing big credits and charging only 10% of the refund plus bank fees for each client.
We saw something similar here at our practice a few years ago.
We had a client that came to us because her old tax preparer didn’t do taxes any more. That turned out to be somewhat of an understatement. With new clients, we ask for a copy of the prior year’s tax return to help us make sure we aren’t missing something that didn’t come up in the interview.
We saw a large itemized deduction in the prior year return as well as an education credit that together helped produce a large refund. But she hadn’t left any supporting documents for those deductions. No mortgage interest statement or list of charitable donations or statement of education expenses. So, we called her to let her know we were missing a few things, which is not unusual.
What was unusual is, when asked for a mortgage statement, she said she had never owned a house. When asked for charitable donations, she said she didn’t have any and had never claimed any. She also said that she had never been in college.
Uh oh. When we told her all of those items had been claimed on her return from last year, she suddenly understood. “Someone in my office prepared that return and guaranteed us a great refund”, she said. ” She prepared several returns, but she got caught embezzling money from my company and she is now in prison”. Our client received a refund that year of several thousand dollars that she was not entitled to.
Unfortunately, even though their was intentional fraud on the part of the tax return preparer, the taxpayer is still liable for the overstated deductions. When you sign your tax return, you vouch for it’s accuracy. You are responsible.
We advised her that she should amend the return from the prior year and she would have to pay back nearly all of her refund. We never saw her again after that year so I don’t know how she handled the situation.
Of course you know the moral of this story. If it is too good to be true, it probably is. Don’t fall for guarantees. Tax preparers can’t base their fee on a percentage of the refund. And make sure you understand at least the major points listed on your return; the income, the deductions and the credits. Each of these should make sense.