Can My Tax Preparer Steal Some of My Refund?

Tax refund security is a concern when entrusting financial information to a tax preparer. While most professionals are ethical, instances of misconduct or fraud can jeopardize a taxpayer’s refund. Understanding risks and maintaining vigilance protects your financial interests during tax season. Taxpayers are ultimately responsible for the accuracy of their tax returns, regardless of who prepares them. This responsibility underscores the need for careful preparer selection and thorough review of all submitted documents.

How Refund Theft Can Happen

Tax preparers can illegally obtain a client’s refund through various deceptive tactics. One common method involves altering direct deposit information on the tax return to divert the refund into the preparer’s own bank account or an account they control. This can happen without the taxpayer’s knowledge, with the preparer providing a fabricated refund amount or delaying communication until the refund is disbursed.

Another scheme involves inflating deductions or credits to generate a larger, illegitimate refund. The preparer might then keep the difference between the actual refund and the fraudulently inflated amount, or a portion thereof. For example, a preparer might fabricate itemized deductions or invent income to falsely claim tax credits like the Earned Income Tax Credit (EITC).

Some unscrupulous preparers charge undisclosed or excessive fees, deducting them directly from the client’s refund. While charging for services is legal, taking a portion without explicit agreement or transparency is a form of theft. This often occurs when a preparer promises a large refund and bases their fee on a percentage, incentivizing fraudulent practices.

Preparers might also use a client’s personal information to file fraudulent returns without authorization. This could involve filing a return using previously obtained data, or after an initial consultation where the client decided not to proceed. The refund is typically directed to the preparer’s account, leaving the taxpayer unaware until they file their legitimate return or receive an IRS notice.

Recognizing Warning Signs

Several indicators can alert taxpayers to potential misconduct by a tax preparer. A warning sign is a preparer who refuses to provide a copy of the completed tax return for review before filing or for the client’s records. Legitimate preparers are required to furnish a copy of the return to their clients.

Asking a client to sign a blank or incomplete tax return is a serious warning sign. This practice allows the preparer to input false information or make unauthorized changes after the client has signed, leaving the taxpayer liable for any inaccuracies. Taxpayers should never sign a return that is not fully completed.

A paid tax preparer must sign the return and include their Preparer Tax Identification Number (PTIN). If a preparer refuses to sign, provides a business label instead of their individual name, or does not provide a PTIN, they are often referred to as “ghost preparers” and should be avoided. This omission makes tracing them difficult if issues arise.

Beware of preparers who base their fees on a percentage of the refund amount or claim they can obtain unusually large refunds without thoroughly reviewing financial documentation. Reputable preparers typically charge a fee based on the complexity of the return, not the outcome. Promises of inflated refunds without proper justification often precede fraudulent activity.

Insisting on cash payments without providing a receipt is another concerning practice. This lack of a paper trail can make it difficult to prove payment or track the preparer’s activities. If a preparer suggests depositing the refund into their own bank account, or an account other than the taxpayer’s, this is a clear indication of potential fraud.

Protecting Your Refund

Choosing a reputable tax preparer is a primary defense against refund theft. Taxpayers can verify a preparer’s credentials using the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This online tool lists:
Attorneys
Certified Public Accountants (CPAs)
Enrolled Agents
Annual Filing Season Program participants who possess valid PTINs

Thoroughly review the completed tax return before signing it. This includes checking all reported income, deductions, credits, and personal information, such as names, addresses, and Social Security numbers. Pay close attention to the bank routing and account numbers for direct deposit to ensure the refund goes to your own account.

Always insist on direct deposit of your refund into your own bank account. Never allow a preparer to have your refund, or any portion of it, deposited into their account or a third-party account. The IRS specifically advises against this practice, as it is a common method for preparers to steal client funds.

Keep copies of all submitted documents and the final tax return for your records. This includes W-2s, 1099s, receipts for deductions, and the signed Form 1040 and any accompanying schedules. These documents serve as proof of what was filed and can be helpful if discrepancies arise later.

Understand all fees upfront, preferably in a written agreement, to prevent unexpected charges or deductions from your refund. Never sign a blank or incomplete tax form, regardless of the preparer’s assurances. You are ultimately responsible for the information reported on your tax return.

What to Do If You Suspect Fraud

If you suspect your tax refund has been stolen or misused by a tax preparer, immediate action is necessary. Begin by gathering all relevant documentation, including:
Copies of your tax return
Receipts for preparer services
Bank statements showing suspicious transactions
Correspondence with the preparer or the IRS

Contact the IRS to report the suspected fraud. You can file Form 14157, “Complaint: Tax Return Preparer,” to report improper practices. If your tax return was filed or altered without your consent, also complete and submit Form 14157-A, “Tax Return Preparer Fraud or Misconduct Affidavit.” Both forms require detailed information about the preparer and the alleged misconduct.

The IRS Taxpayer Advocate Service (TAS) can provide assistance if you are experiencing significant financial hardship or have been unable to resolve your issue through normal IRS channels. TAS is an independent organization within the IRS dedicated to protecting taxpayer rights and resolving complex tax problems.

Consider contacting your state tax agency, as they may have their own procedures for reporting tax preparer fraud, especially if state tax returns were also affected. If the preparer holds a professional license, such as a CPA or Enrolled Agent, report them to their respective professional organization or state board of accountancy.

For cases involving identity theft or outright theft of funds, filing a police report with your local law enforcement agency is important. This creates a criminal record of the incident and can aid in investigations. Additionally, monitor your credit reports for any signs of identity theft, as your personal information may have been compromised beyond your tax refund.