The Internal Revenue Service has sent an advisory to caution taxpayers about how to choose a tax preparer and avoid preparer fraud.

The IRS warned taxpayers to steer clear of preparers who claim inflated personal or business expenses, false deductions, unallowable tax credits or excessive exemptions, but noted that in some situations the client may not even be aware of the false information.

"However, when the IRS detects a fraudulent return, the taxpayer - not the return preparer - must pay the additional taxes and interest and may be subject to penalties," said the IRS.

The agency cited some statistics from the past few years of prosecutions of tax preparers by its Criminal Investigation Division:

Criminal Investigation Statistical Information on Return Preparer Fraud
  FY2008 FY2007 FY2006
 Investigations Initiated  214  218  197 
 Prosecution Recommendations  134  196  153
 Indictments/Informations  142  131  135
 Sentenced  124  123  109
 Incarceration Rate *  81.5%  81.3% 89.0%
 Average Months to Serve  18  19   18 

* Incarceration may include prison time, home confinement, electronic monitoring or a combination. The IRS warned taxpayers to choose tax preparers carefully and never to sign a blank return. It also provided the following tips:* Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.

* Avoid preparers who base their fee on a percentage of the refund.

* Use a reputable tax professional who signs the tax return and provides a copy.

* Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months, or even years, after the return has been filed.

* Check the person's credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.

* Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

* Ask friends and family whether they know anyone who has used the tax professional and whether they were satisfied with the service they received.

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