On the precipice of tax season, the Internal Revenue Service is touting its 89 percent success rate last year when it came to prosecuting fraudulent preparers of tax returns.According to statistics released by the agency, the number of preparer fraud indictments increased to 135 in 2006, from 119 the previous year. Of the charges brought by the IRS, 89 percent resulting in an incarceration rate, a 3 percent increase over 2005. However, the number of fraud investigations initiated last year actually decreased to 197, down almost 20 percent from 2005's 248 investigations.

Return preparer fraud generally involves the preparation and filing of false income tax returns by preparers who claim improper personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients.

While taxpayers may not know of the fraudulent activity taking place, they are ultimately responsible for the discrepancies.

The IRS Return Preparer Program focuses on enhancing compliance by investigating and referring criminal activity by return preparers to the department of justice for prosecution, and when necessary, assessing civil penalties against unscrupulous return preparers.

Among the tips suggested by the IRS for taxpayers choosing a return preparer:

  • Be careful with tax preparers who claim they can obtain larger refunds than other preparers;
  • Avoid preparers who base their fee on a percentage of the amount of the refund;
  • Stay away from preparers who claim that many phone customers can get hundreds of dollars or more back under the telephone tax refund program;
  • Consider if the individual or firm will be accessible if questions about the preparation emerge months, or even years, after the filing;
  • Never sign a blank tax reform; and,
  • Check the return preparer’s credentials.

Suspicious activity can be reported using the IRS Form 3949-A, “Information Referral,” which is available at www.IRS.gov. Tax evasion is considered a felony and is punishable by five years imprisonment and a $250,000 fine.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access