It’s my annual “Taxes from A to Z” series! If you’re wondering whether you can claim home office expenses or whether to deduct a capital loss, you won’t want to miss a single letter.
G is for Ghost Preparer
The man in my office stared at the Notice of Adjustment from Internal Revenue Service (IRS) and admitted that he owed the money. But, he said, he wasn’t responsible for the error. His tax preparer made the mistake by including information on the return that wasn’t true. There was just one problem: There was no tax preparer name, signature or Preparer Tax Identification Number (PTIN) on the return. The preparer was a ghost preparer.
A ghost preparer is a paid tax preparer who isn’t on the IRS radar because he or she doesn’t have a PTIN. And to stay hidden, a ghost preparer will take money from a taxpayer to prepare a tax return but not sign the return which means that, to the IRS, the return appears to be self-prepared.
Paid tax preparers are supposed to sign and include their PTIN at the bottom of the return (see below). But some do not, often because they don’t want to be responsible for the consequences. They are referred to in the business as ghost preparers or black market preparers.
Ghost preparers tend to set up shop around tax time, usually as a short time rental in a busy area, or a community gathering place like a church. They tout “big and fast” tax refunds to taxpayers, almost always in combination with a refund anticipation type loans. They advertise low fees to get taxpayers in the door but the costs for other services, like refund loans, which are tied to the size of a refund, quickly add up. The result? Incentives to cheat, including reporting bogus Head of Household filing status, inflated Earned Income Tax Credits, made up education credits and fabricated business expenses.
Here’s what those taxpayers don’t realize: The potential for audit in these cases is high since those missteps are IRS targets.
But by the time the behavior catches up with the taxpayer, the tax preparer is out of the picture. He or she won’t return calls if the tax preparer had even provided a number. In almost every case, the taxpayer braves any audit on their own. There is no documentation and no real excuses. The result? Refund repayments. Tax obligations. Penalties. Interest. And a financial mess.
According to the 1040 instructions, “Someone who prepares your return but doesn’t charge you shouldn’t sign your return.” But that isn’t stopping those tax preparers. Or taxpayers who use those services. That client of mine? He was the first of many similar cases to walk through my door. And while we may want to believe that those who would skirt the system are bad people, that’s not usually true. They’re just like everybody else. They’re nurses and supervisors and retail workers. They’re moms and dads and sons and daughters. They have families and houses and jobs. And they’ve made poor choices – often at the urging of friends and families who swear they won’t get caught – which have been exacerbated by pressures from these ghost preparers who make promises that they can’t possibly keep.
The lesson to be learned? Don’t fall for the tricks. Seek out a competent tax preparer who will answer your questions and sign your tax return. You can also check the IRS public directory to find a listing of preparers in your area who currently hold professional credentials recognized by the IRS or who hold an Annual Filing Season Program Record of Completion.
For your taxes from A to Z, here’s the rest of the series: