A Warning to Tax Preparers: Part 1

Everyone hates taxes. Whether it be preparing taxes, filing taxes, or paying taxes, the only light at the end of the tunnel (obviously besides avoiding penalties and possible jail-time) is a possible tax refund. Fortunately for most, some good Samaritans who are gifted in the mathematical arts take on this burden for others and save the average person from the headache associated with filings taxes, and the fear of doing it incorrectly. Who are these good Samaritans? The friendly-neighborhood tax preparer, of course. Unfortunately for those helpful tax preparers out there, that tax refund is a strong incentive for the taxpayer to fudge numbers to get more money. In other words, a taxpayer may allude to activities, or something similar, that a tax preparer interprets as deductible expenses that could benefit the taxpayer’s bottom line. This often causes a tax preparer to create an IRS form to deduct business expenses for the taxpayer, a Schedule C, and inputting business expenses as they believed the taxpayer was representing to them. Even worse, time and time again, the IRS will see this as fraudulent activity by the tax preparer instead of the taxpayer, open a criminal investigation into the tax preparer, and ultimately charge the tax preparer with aiding, assisting, or counseling a taxpayer to file a false or fraudulent return.[1]

So here’s a warning to all the tax preparers out there: make sure to retain any and all records supporting the information furnished by the taxpayer. Of particular note, the IRS e-file authorization form that a taxpayer must sign for a tax preparer to submit the taxpayer’s return electronically, Form 8879, is not necessarily sufficient to exonerate a tax preparer from liability.[2] Indeed, the IRS often scrutinizes the tax preparer more so than the taxpayer in situations such as this.

On first impression, it may seem that the IRS’s scrutiny is misplaced. Tax preparers are not supposed to charge a fee contingent on the amount of a taxpayer’s tax liability, so how could the tax preparer benefit by lowering a taxpayer’s tax liability and intentionally granting the taxpayer a refund? One would think that the taxpayer is clearly the most culpable in these situations because the taxpayer directly benefits from the refund, while the tax preparer gets paid the same regardless. Yet, the IRS would disagree. When prosecuting tax preparers for aiding, assisting, or counseling a taxpayer to file a false or fraudulent return, the IRS consistently asserts that the tax preparer benefits from this interaction by word of mouth from those assumedly-happy taxpayers that received the refunds, resulting in higher volume for the tax preparer. This connection is often damning in front of a jury as well, who then views the tax preparer as preying on unknowing taxpayers for his or her own selfish gain.

However, all hope is not lost…


–By Tony Nasser, Esq., Barnes Law

 Tony Nasser is an attorney with Barnes Law, licensed to practice law in California.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] 26 U.S.C. § 7206(b).

[2] See https://www.irs.gov/pub/irs-pdf/f8879.pdf.