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Watch Out for Fake Tax Preparers Who Steal Your Identity and Run Off With Your Cash

The annual rush to file taxes creates a major opportunity for fraudulent tax preparers who charge inflated fees and file inaccurate returns.
Image: Tax forms
During tax years 2006 to 2011, 66,920 people filed using a Social Security number for someone born before June 16, 1901.Jon Sweeney / NBC News

Tax Day (April 18 this year) is growing ever closer and many Americans will need to use a tax preparer to get their returns in on time. This annual rush to the finish line creates a major opportunity for fraudulent tax preparers who charge inflated fees and file inaccurate returns to claim bogus refunds.

“The vast majority of tax preparers are ethical and will file your taxes completely and safely,” said John Breyault, who runs, a project of the National Consumers League. “However, if you use a preparer you don’t know and trust, you could pay much more out of pocket than you should to have your taxes done. This also puts you at greater risk of fines, fees or an IRS audit, if they file an incomplete or incorrect return.”

Paid preparers are an integral part of the U.S. tax system. They do about 60 percent of all the returns each year, according to the Internal Revenue Service. The IRS recently warned about unscrupulous preparers, calling it one of the most common “Dirty Dozen” tax scams.

Related: Treasury Secretary Mnuchin Says to Expect Complete Tax Overhaul by August

These dishonest businesses “prey on unsuspecting taxpayers with outlandish promises of overly large refunds,” the IRS said in a news release. Some also commit identity theft with the sensitive private information clients give them in order to prepare their return.

"Choose your tax return preparer carefully because you entrust them with your private financial information that needs to be protected," IRS Commissioner John Koskinen said in a statement.

In many cases, the taxpayers whose returns are falsified are innocent victims, unaware of what’s happening. But sometimes, they do know and agree to the fraudulent filing because they’re going to get such a large refund, said Kenneth Hines, former Special Agent with IRS Criminal Investigations and founder of Hines Consulting USA.

“If you go along with making up the numbers — false expenses or deductions, extra dependents or incorrect filing status — you could face fines or criminal charges for filing a false return,” he said.

Hines shared a few “red flags” that signal a preparer is dishonest:

  • They want you to sign a blank return. You wouldn’t sign a blank check; don’t sign a blank return.
  • They say their fee is based on the size of your refund. This is a violation of IRS rules because it’s an incentive to cheat.
  • They try to talk you into something you don’t feel comfortable with, such as “Everyone is claiming a home office deduction, so you should, too.”
  • They claim to have super-secret ways to lower your tax bill that the IRS doesn’t want you to know about.

“Victims would always tell us they felt something was wrong, but because they were getting a big refund, they went along with it,” Hines told NBC News. “You can’t throw up your hands and say someone led me down this path. You are responsible because it’s your return, period.”

Trying to Catch the Bad Apples

Federal prosecutors have been actively going after these tax cheats. Just last week, three former preparers were sentenced to prison:

  • A tax preparer in Rosenhayn, New Jersey, got a year in prison for filing false federal income tax returns for at least four years. Noemi Pender and her co-conspirator defrauded the treasury out of more than $340,000 by getting their clients refunds greater than they were legally entitled to receive, according to the U.S. Department of Justice.

The government said Pender Tax Services created phony dependents and bogus deductions, claimed non-existent credits for education and child care, and falsely claimed the filer was the head of household.

  • A federal judge in Orlando ordered Jason Stinson, a businessman from central Florida, to pay a civil penalty of nearly $950,000 for preparing false returns. Stinson owned Nation Tax Services with offices in Florida, Alabama, Georgia and North Carolina. He was charged with getting inflated refunds for clients by fabricating dependents, business expenses and charitable contributions.

The court found that Stinson’s companies targeted “underprivileged, undereducated poor people” who were charged more than $600 — sometimes as much as $999 — to prepare a single return. Sometimes those fees would be taken out of the customer’s refund, so they never knew about it, according to the Justice Department. The court permanently prohibited Stinson from owning or operating any tax return preparation business.

  • A woman in Omaha, Nebraska, was sentenced to 18 months in prison for tax fraud. Lisa Holmes admitted to creating false tax returns in order to get several clients larger refunds. The Justice Department release noted that the court also ordered her to pay $48,000 in restitution, noted.

Dishonest tax preparers also try to cheat tax collectors in states with an income tax. Earlier this month, Massachusetts Attorney General Maura Healey charged a tax preparer in her state with pocketing more than $150,000 in state funds since 2009. The lawsuit claims the company, Tax Enterprises, filed about 300 falsified returns that claimed more than $2 million in fraudulent deductions.

No Qualifications Required for Most Tax Preparers

In all but four states — California, Maryland, New York and Oregon — anyone can call themselves a tax preparer and charge for their services. They’re not required to meet any minimum educational competency or training standards.

“That’s why we are very concerned about the issue of preparer competency,” said Chi Chi Wu, staff attorney with the non-profit National Consumer Law Center.

That concern is based on several rounds of mystery shopping done by NCLC, government investigators and other consumer advocates.

“We found high levels of errors in the returns that were prepared, as well as outright fraud, in some cases,” Wu told NBC News. “We were amazed and shocked.”

Related: Trump Lobbied for Tax Changes 25 Years Ago that Would Benefit Real Estate Developers

In one case, a preparer simply made up $9,000 of business expenses, she said. Another advised the mystery shopper to claim the Earned Income Tax Credit when she didn’t qualify for it.

The IRS tried to address this problem by creating a mandatory registration and certification program, but that was stopped by the D.C. Court of Appeals in 2014. Tax preparers who want to show they’re qualified can take a voluntary test to be certified by the IRS. Certain tax preparers, such as Certified Public Accounts (CPAs) and enrolled agents, do have special training and must pass tests to prove it. The IRS has a directory of credentialed preparers and tips on how to choose a tax professional on its website.

Free and Trustworthy Help Available

Millions of Americans can take advantage of various free or inexpensive tax preparation services.

The Volunteer Income Tax Assistance program offers free tax help to people who want to prepare their own returns. VITA is for taxpayers who make $54,000 or less a year and those with disabilities or limited English skills. IRS-certified volunteers provide free basic income tax return preparation with electronic filing to qualified individuals.

The Tax Counseling for the Elderly program offers free tax help for all taxpayers 60 years of age and older. The IRS-certified volunteers specialize in questions about pensions and retirement-related issues unique to seniors. Find out more about VITA and TCE on the IRS website.

The AARP Foundation’s Tax-Aide program offers free, individualized tax preparation for low-to moderate-income taxpayers — especially those 50 and older — at more than 5,000 locations nationwide.

If your adjusted gross income was less than $64,000 last year, you qualify for the IRS Free File program. This year you can choose filing software from a dozen brand-name software companies to file your federal return for free. Some of these programs also make it possible to file state returns for free.

There’s no income requirement for those who want to use the free commercial software programs on the market that let you file for free. The editors at Kiplinger’s Personal Finance recently reviewed seven of these programs and found two they really liked that prepare both state and federal returns: H&R Block More Zero, for taxpayers who file 1040EZ or 1040A and those who itemize and claim the most common deductions; and Credit Karma Tax.

Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.