It should have been a red flag. Our (then) tax preparer was agitated because my check was made out incorrectly. I had written the check to “John Doe & Associates” but, he told me, his new corporate name was “John Doe, LLC.” I seemed to recall briefly seeing an email about the change, but it clearly hadn’t registered. I apologized for the oversight and offered to send a new check.
His level of annoyance was confusing. Mistakes happen and this one could easily be rectified. I know that entity names matter, but when it comes to small businesses, it’s not unusual for banks to make an accommodation. Banks often accept checks for businesses made out to owners or when there are slight differences in names. Ours even accepts checks when clients spell the law firm name with an H (which always makes us chuckle about the kind of work the “herb” law firm might do).
I would later find out the likely reason for the accountant’s panic. It turned out that the Internal Revenue Service (IRS) was keeping tabs on his finances (so much so that an indictment would follow). Changing business names would have allowed him access to certain accounts without an additional level of scrutiny.
That was years ago. It was an old trick even then, but it still goes on today.
Changing the name of a business can make it easy to hide accounts from creditors, including the tax authorities, or dupe potential customers into believing that an old flawed company is, in fact, a completely new one.
That doesn’t mean that it’s always successful. Last week, the Department of Justice announced a guilty plea in a Boston federal district court involving the willful failure to collect and pay over employment taxes. As part of a scheme, Huong Le operated an employment agency that used at least four different names in five years. According to the DOJ, Le used family members and others as nominees to incorporate the employment agency under nominee names and open bank accounts in those names to conceal the ownership of the business.
And earlier this month, two former Memphis staffing company owners, Mark Stinson and his wife, Jayton Stinson, were sentenced to prison for payroll tax fraud. According to the DOJ, in an effort to avoid making payments to the IRS, the Stinsons changed the name and structure of the company multiple times after accumulating employment tax liabilities, operating as Jayton Stinson Connex Staffing & Janitorial Service, Connexx Staffing Services LLC, Connexx Staffing Services Inc., and Complete Employment Agency.
Name changes aren’t always a bad thing, however. There are legitimate reasons for changing the name, look, or location of a business. Businesses may re-brand because they’ve changed the scope of services, added partners or associates, merged with or acquired another company, or simply because it was time for a refresh (think Yahoo or KFC). But businesses that change names, looks, and locations over and over should raise some questions – especially when it comes to tax preparers.
According to the IRS, more than half (about 56%) of taxpayers rely on professional tax preparers. But even if you use a professional, you’re ultimately responsible for what’s on the tax return. That’s why this time of year, the IRS warns taxpayers to be on the lookout for unscrupulous tax preparers “looking to make a fast buck from honest people seeking tax assistance.”
The key to business for those unscrupulous tax preparers? Attracting attention from taxpayers while staying relatively out of sight when it comes to the feds. That’s why unscrupulous tax preparers go to such lengths as opening and closing at different locations, using throw-away or burner phone numbers (popular for tax preparers who may solicit online), and changing the name of their businesses multiple times. This allows tax preparers to use bogus or borrowed PTINs (preparer taxpayer identification numbers) or to skip out on registering with IRS altogether while operating as a ghost preparer.
What does it mean for you? Plenty. If there’s a problem with or error on your return, and your tax preparer has already skipped out, you may be left to explain away the difficulty on your own. And even if you trusted the tax preparer to do the right thing, the tax liability plus interest and penalty, becomes your obligation.
So be smart. If you don’t feel good about a preparer, trust your gut. Make sure the preparer’s story makes sense. A tax preparer that can’t maintain a consistent location or identity may have underlying issues, so if there’s no reasonable explanation for significant and constant changes, take a step back.
Remember, you’re about to allow this person access to your personal and financial information. You need to be able to trust them and to find them if there’s a problem. Do your homework. Here are some more tips to help you:
- Ask the right questions. You’re paying for a service, so make sure that the person you’re hiring is the right one for the job.
- Avoid gimmicks. Tax preparers that spend more time touting free food and beautiful girls should give you pause. Desmond Hudson, an Enrolled Agen, and owner of Hudson Tax Services in Philadelphia, PA, says that he wishes those same preparers advertised, “We have Enrolled Agents, Lawyers and CPAs.”
- Read reviews. You have to take some reviews with a grain of salt (not all expectations are fair ones when it comes to taxes – just like restaurants or movies) but do pay attention if there are multiple reviews complaining about the basics, like being unable to reach the preparer, copies not provided, or lack of follow-up.
- Ask about a PTIN. Remember, paid tax return preparers are required to register with the IRS, have a PTIN, and include it on tax returns. You can find out more about the online PTIN directory here.
- Understand what professional credentials mean. Be wary of tax preparers who tout credentials that are clearly bogus or purchased.
- Report abusive or unscrupulous preparers to the IRS. Here’s how.