The IRS is Cracking Down on Fraudulent Tax Pros (Beware of these Red Flags)

D. Rhodes, CPA, Writer and Editor

Under IRS Publication 17 and IRS Regulations 26 U.S. Code § 6065 and 26 CFR § 1.6694-1, you're legally responsible for your return even if someone else prepares it. That's why that "too good to be true" tax professional isn't worth the risk.

In New York, they called him "the Magician" - a tax preparer who made deductions appear out of thin air. Rafael Alvarez orchestrated a $100 million fraud scheme through his tax preparation company, filing countless fraudulent returns.

His specialty? Creating rental properties that didn't exist, inventing business expenses from nothing, and making up capital losses to inflate refunds. 

Meanwhile in Texas, John Castro marketed himself as an "international tax expert and legal professional," even though he wasn’t. He finished school but never passed the rigorous exams to become a licensed CPA or Attorney. 

He promised clients significantly larger refunds than any other preparer could deliver. His pitch was simple - he knew special deductions others missed, and he'd split the extra refund with you. When clients questioned his methods, he filed amended returns without their permission that left them owing tens of thousands to the IRS. His reward? Over fifteen years in prison and over two hundred and seventy-five thousand dollars in restitution. But that’s not the worst part.

The clients of these tax professionals still owed the tax liability, plus penalties and interest. Many faced audits and significant financial hardship to this day.

"Check credentials, check history, and above all - if it sounds too good to be true, it probably is." - The IRS Director of Return Preparer Office

Unfortunately, these aren't isolated incidents.

The U.S. Justice Department had to shut down a gross amount of tax preparers last year for fraud, both knowingly (intention) and unknowingly (incompetence). That's not even counting the ones who got away with it. 

Let me show you what these cases reveal about spotting shady tax professionals, and the red flags most people miss until it's too late. 

You've heard of ghosting in dating? Well, it happens in taxes too. These "ghost preparers" are exactly what they sound like - they disappear when it matters most.

They refuse to sign tax returns, which is actually illegal under 26 U.S. Code § 6695(b) and 26 CFR § 1.6695-1(b). They make you sign and file yourself, often work only in cash, and are hard to reach after tax season. 

Think it's rare? The IRS identified over 15,000 fraudulent returns from ghost preparers in four months alone. But disappearing isn't the only trick in the playbook. Let's talk about some “promises” that should set off immediate alarms. 

Ever had a preparer guarantee a specific refund before even seeing your documents? If so, you should run. It's like a doctor diagnosing you before the examination. Real tax professionals know every situation is unique.

Hears a red flag that might sound reasonable at first: 

"I'll take 10% of your refund as my fee!"

Sounds fair, right? Wrong. This practice is actually banned by the IRS under Treasury Department Circular No. 230, Section 10.27(a), because it incentivizes inflating refunds through questionable methods.

And while we're on the topic of questionable practices, ever notice how some preparers only show up January through April? Research shows over 60% of fraudulent preparers vanish after tax season. Real professionals stick around because tax issues don't take vacations. 

The digital age has brought new twists to old scams. Now you need to watch for preparers who: 

• Ask you to sign electronically without the opportunity for you to review 

• Can't or won't show you their PTIN (Preparer Tax Identification Number) 

And here's something most people don't know – under IRS Regulation 26 CFR § 1.6107-1(a)(1), your preparer must give you a copy of the entire return before filing. If they don't, they're breaking the law. 

After verifying your tax professional via the IRS Directory of Federal Tax Return Preparers with Credentials (https://irs.treasury.gov/rpo/rpo.jsf), your legitimate tax professional should: 

• Have a valid PTIN 

• Sign your return with their PTIN 

• Provide their IRS e-file number 

• Give you copies of everything 

• Be available after filing season 

So what should you do if you believe you’ve already fallen for a fraudulent ‘tax professional’? Report them using IRS Form 14157.  

IRS Form 14157 is used to report suspected misconduct or fraudulent activity by a tax return preparer. If you believe your tax professional has violated tax laws, engaged in unethical practices, or filed false returns, this form allows you to submit a complaint directly to the IRS. 

Remember: Our ultimate goal is to help you save time and money, while building wealth and legacy.

The choice is yours, but the clock is ticking. Reach out today so we can help get you from where you're at, to where you want to be. Your move boss.

Get Connected!

*This article provides general information, not individual tax advice. Tax situations vary; consult with a qualified tax professional, like myself, for advice specific to your circumstances.