~~Return Preparer Enforcement Program~~

Overview

The IRS Criminal Investigation Return Preparer Program (RPP) was implemented in 1996, and established procedures to foster compliance by identifying, investigating and prosecuting abusive return preparers. The program was developed to enhance compliance in the return-preparer community by engaging in enforcement actions and/or asserting appropriate civil penalties against unscrupulous or incompetent return preparers. This is a significant problem for both the IRS and our taxpayers. Abusive return preparers frequently prepare bad returns for large numbers of taxpayers who, at best, are stuck with paying additional taxes and interest and at worse, depending on culpability, are subject to penalties and maybe even criminal prosecution.

Taxpayers should be very careful when choosing a tax preparer. You should be as careful as you would in choosing a doctor or a lawyer. While most preparers provide excellent service to their clients, a few unscrupulous tax preparers file false and fraudulent tax returns and ultimately defraud their clients. It is important to know that even if someone else prepares your return, you are ultimately responsible for all the information on the tax return.

Definition

A Return Preparer is defined as any person (including a partnership or corporation) who prepares for compensation all or a substantial portion of a tax return or claim for refund under the income tax provisions of the Internal Revenue Code.

Return Preparer Fraud generally involves the orchestrated preparation and filing of false income tax returns (in either paper or electronic form) by unscrupulous preparers who may claim, for example:

• inflated personal or business expenses,
• false deductions,
• unallowable credits or excessive exemptions,
• fraudulent tax credits, such as the Earned Income Tax Credit (EITC).

The preparers' clients may or may not have knowledge of the false expenses, deductions, exemptions and/or credits shown on their tax returns.

Return Preparation and Electronic Filing

The advent of electronic filing of income tax returns (ELF) and the use of refund anticipation loans (RAL) by electronic return transmitters has provided a new mechanism for unscrupulous preparers to commit fraud.

Tactics Used by Dishonest Preparers

Dishonest tax preparers use a variety of methods to formulate fraudulent and illegal deductions reducing taxable income. These include, but are not limited to, the following:

• Preparing fraudulent Schedule C, Profit or Loss from Business, claiming deductions for expenses that have not been paid by the taxpayer to offset Form 1099, Miscellaneous Income, or income earned from outside employment,
• Including false and inflated itemized deductions on Schedule A, Itemized Deductions, for:
  • charitable contributions
  • medical and dental expenses
• Claiming false Schedule E, Supplemental Income and Loss, losses
• Claiming false dependents

Helpful Hints when choosing a Return Preparer

When preparing your tax return remember:

• Taxpayers are responsible for the accuracy of all entries made on their tax returns, which include related schedules, forms and supporting documentation. This remains true whether the return is prepared by the taxpayer or by a return preparer.
• Be careful in selecting the tax professional who will prepare your return. Some basic tips and guidelines to assist taxpayers in choosing a reputable tax professional are:
  • Avoid 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 that signs your tax return and provides you with a copy for your records.
  • Consider whether the tax professional offers electronic filing options and other payment options that you want.
  • Consider whether the individual or firm will be around to answer questions about the preparation of your tax return, months, even years, after the return has been filed.
  • Never sign a blank tax form.
  • Ask questions. Do you know anyone who has used the tax professional? Were they satisfied with the service they received?
• Tax Evasion is a risky crime, a felony, punishable by 5 years imprisonment and a $10,000 fine.

When in doubt, check it out! Taxpayers hearing claims from preparers offering larger refunds than other preparers are encouraged to check it out with a trusted tax professional or the IRS before getting involved.