Home & Family Finance Resource Center

Sunday, November 22, 2009

Word to the wise taxpayer: Beware third-party fraud

WASHINGTON (8/12/09)--Recent successful federal prosecutions should serve as a warning to all taxpayers: Hiring someone to prepare your tax return does not absolve you of responsibility for its accuracy and truth.

Last month the Internal Revenue Service (IRS) made an example of James Otto Price III, a Jacksonville, Fla.-tax preparer who pleaded guilty to claiming a first-time homebuyer tax credit for a client who was not eligible. Price could receive a sentence of up to three years in jail and/or a fine of up to $250,000.

"The kicker here is that this guy's client is not off the hook," pointed out Jim Hanson, vice president of the Credit Union National Association's Center for Personal Finance. "Whether you prepare your own tax return or hire someone else to do it, you are personally responsible for the information you provide. And false claims can make you liable for penalties and interest in addition to back taxes."

CUNA's Center for Personal Finance editors offered these tips for getting sound tax preparation assistance:

• Hire a professional with a proven track record. Look for an enrolled agent, certified public accountant (CPA), or tax attorney. Only these professionals are empowered to represent you before the IRS in all matters, not just audits that they prepared and signed. Another indication of competency is affiliation with a professional organization requiring members to meet continuing education standards and follow a code of ethics. Check with the Better Business Bureau, your state's board of CPA accountancy, your state's bar association, or the IRS Office of Professional Responsibility to see if there is any record of problems with tax preparers you're considering.

• Shun preparers who promise to get you a larger refund than their competitors can. Tax returns done correctly should arrive at roughly the same results, no matter who does the calculations.

• Review the preparer's work thoroughly before signing your return. Make sure that your identifying information is correct and that nothing is left blank. Never sign a return before it's filled in and then sign only in nonerasable ink.

• Take advantage of free assistance only from trained volunteers. You can receive free tax preparation assistance through the Volunteer Income Tax Assistance Program (VITA, for taxpayers with "low- to moderate-income," which is generally $49,000 and less), Tax Counseling for the Elderly (TCE, for those aged 60 or older), and the Armed Forces Tax Council (AFTC, for members of the military and their families). Qualified volunteers with these programs are trained to help taxpayers identify and legitimately claim special credits, such as Earned Income Tax Credit. (Bear in mind that only paid tax preparers are required by law to sign returns that they have worked on.)

For more information, consult these articles at www.irs.gov: "Tips for Choosing a Tax Preparer" and "Free Tax Return Preparation For You by Volunteers."