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How to Spot Tax Preparation Fraud

Tax fraud can be committed in a number of ways. It can happen when someone intentionally fails to report income on their taxes, or when a person files a fraudulent claim, such as claiming dependents, deductions or credits they’re not eligible for. Or, if you hire a tax professional, they could attempt fraud, without your knowledge.

What is Tax Preparation Fraud?

While tax preparation fraud can be committed by an individual who files for themselves, it can also be committed by a tax preparer who alters a tax return in order to intercept a client’s refund. Preparers who charge a percentage of the refund amount may also commit tax preparation fraud in order to charge more money for services.

If a tax preparer submits a fraudulent return on your behalf, even if it happens without your knowledge, you could still be liable for unpaid taxes as well as interest and other penalties, which could be as severe as prison time and massive fines. Before you choose a tax preparer, learn how to spot the signs of fraud and prevent being exposed to this serious crime.

Four Ways to Prevent Tax Preparation Fraud

Tax preparers can help you navigate difficult tax issues and find deductions . According to the IRS, most tax preparers are legitimate professionals, but it’s still crucial to look out for warning signs of fraud and make sure your returns are filed correctly. Here’s what you can do to protect yourself:

  1. Choose a qualified tax preparer
    Not every tax preparer is well-qualified. A fraudster will intentionally include errors on a tax return, but any poorly-trained tax preparer can make significant mistakes, too.

    At minimum, your preparer should have an IRS Preparer Tax Identification Number (IPTIN) and be in business year-round. The fee a preparer charges should never be based on a percentage of your refund amount, since this provides an incentive to commit fraud.

    To search for preparers in your area who have advanced credentials, including Certified Public Accountants and attorneys, you can use the IRS Directory. Or, search for license status and disciplinary history through the Better Business Bureau (BBB).

  2. Review your completed return
    Whether you self-prepare or hire a tax preparer, take time to review your completed return and address any errors or confusion, before the documents are submitted to the IRS. Fraudsters may go so far as to ask you to sign in pencil or sign a blank return which can then be completed by the preparer.

    When reviewing your return, be sure to look for and remedy incorrect income amounts, bank account numbers and routing numbers, and inaccurate or incomplete information about the tax preparer.

  3. Make sure your return is signed and submitted
    Ghost preparers are scammers who will complete your return but fail to sign or submit the documents. This can make it difficult or impossible to track them down or prove who prepared the return. Ultimately it is the taxpayer who is responsible for what is filed, so it’s crucial to make sure that both parties’ signatures are recorded and the documents are filed with the IRS.
  4. Report suspicious activity
    Preparers make mistakes sometimes, but if you suspect a tax preparer is making intentional errors you can take action. If you encounter any of these additional red flags, report the suspected fraud to the IRS:

    • Information intentionally falsified to increase a tax refund
    • Cash payment is required and no receipt or copy of the tax return is provided
    • Refunds are set up to be deposited to an unfamiliar account

If you have reason to believe you’re the victim of tax fraud or any type of identity theft, take immediate action. A fraudulent tax preparer could potentially have enough of your personal information to commit further crimes against you, like applying for credit cards or government benefits in your name.

For support in detecting and recovering from fraud, sign up for an advanced identity protection service like Complete ID™. Costco members can purchase Complete ID* at a Costco member price to benefit from Social Security number monitoring, Financial Account Takeover Services, Credit Alerts, Non-credit Identity Monitoring and more.

* $8.99 per month per person for Executive Members or $13.99 per month per person for Gold Star and Business Members, plus sales tax where applicable.

Service provided by Experian®.

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  • *$8.99 per person per month for Executive Members or $13.99 per person per month for Gold Star and Business Members, plus sales tax where applicable. Service provided by Experian®.