Have you ever heard friends brag about the size of their income tax refunds, claiming that they have some “great” accountant who always managed to get them an unusually large refund? Or have you ever had an accountant or CPA try to win you as a client by claiming that he or she can get you more money back than anyone else?

When it comes to your tax returns, if a tax refund seems too good to be true, it very well may be. Although the vast majority of the accounting profession is honest, a small number of tax preparers attempt to lure in prospective clients by promising huge refunds. In a recent example, Lansing area tax preparer Darryl Stanley Horton was just indicted by a federal grand jury for filing false and fraudulent income tax returns, and all of his clients face potential audits. (To be clear, Horton was neither a CPA or even a licensed accountant.)

When you sign your tax return, you are taking responsibility for the accuracy of the return, regardless of whether you prepared it. You, not your accountant, would be held liable for any additional tax, penalty and interest owed. In addition, it may take years for the IRS to realize any error; meanwhile, they will backdate the penalty and interest to the date when the tax should have originally been paid. This can mean huge tax liabilities for individuals being audited.

When the IRS discovers a tax preparer committing fraud, they often audit ALL the returns prepared by that individual. We have had clients come to us because their CPA had been targeted, and as a result, they were being audited for several thousand dollars in additional taxes.

How do you know what to look for in a CPA or accountant, and what to be wary of? Here are some tips from the IRS:

 

• Reputable preparers will ask to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so, they are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.
• 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 amount of the refund.
• Use a reputable tax professional who signs your tax return and provides you with a copy for your records.
• Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.
• Review your return before you sign it and ask questions on entries you don’t understand.
• No matter who prepares your tax return, you, the taxpayer, are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.
• Find out the person’s credentials. Only attorneys, certified public accountants (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 questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?