Asian Journal- The Filipino-American Community Newspaper

THIS one’s a classic story. Joe and Mary are a hardworking couple who both work two jobs. They have been using a tax preparer for seven years to prepare their income tax returns.

For the first six years, they have come out clean from an IRS audit but on the seventh year, they caught the prying eyes of the IRS.

In their tax return are itemized deductions they never thought would have been there until the audit notice came. And these are deductions they could never possibly substantiate with the IRS; not nearly possible.

They were able to remodel their kitchen for the $15,000 refund that they received for the tax year that was in question. The tax preparer received another 10% from the refund as fee for preparing the return for Joe and Mary.

The audit concluded with Joe and Mary having to pay back more than $11,000 to the IRS for the unsubstantiated deductions, plus penalties and interests. At the time, the tax preparer already got his percentage of the refund and is not in any way obligated to pay anything back while taxpayers Joe and Mary have to negotiate an installment agreement with the IRS.

When asked, the couple said they simply left their tax papers to their tax preparer, as in the years prior. When they came back, everything was ready for their signatures and they were simply told about their huge refund. They didn’t even look at what’s in the papers that they signed.

Their story is no different from a lot of other unsuspecting taxpayers. In fact, the IRS and other public and private organizations have been repeatedly warning taxpayers of these types of schemes- tax preparation fraud.

Steer clear of tax preparers who charge certain percentage-based fees and promise big refunds. The IRS warns against working with tax preparers who say they can get a larger refund for you. The IRS also recommends that you shouldn’t work with preparers who charge fees based on a percentage of your refund. This is a red flag for possible fraudulent activities.

Know that false expenses included by a tax preparer may result in penalties and criminal charges filed against you. Tax-preparer fraud often involves preparers claiming false deductions, credits that aren’t allowed and inappropriate exemptions.