With Halloween quickly approaching, taxes may be the last thing on your mind. But there’s a scary thing happening as folks gear up for the end of the year and start gathering their tax info.
The issue: unscrupulous tax preparers, known as “ghost preparers,” who file false returns and scam unsuspecting taxpayers.
Recent reports show these ghost tax preparers, including several in the Black community, cheating people out of refunds and exposing them to audits or even potential criminal charges.
Consequently, it’s important to be aware of how ghost preparers operate, and the steps you can take to avoid becoming a victim.
Here’s what you need to know.
What is a Ghost Tax Preparer?
A ghost tax preparer is an individual who does not sign the tax returns they prepare. Instead, they print the words “self-prepared” on a tax return -- making it seem as if you, the taxpayer, completed the return.
A ghost preparer may prepare seemingly accurate tax returns, but they often falsify deductions, credits, or income to increase refunds. Then they illegally grab those refund checks for themselves. Some don’t file the return at all and simply pocket the money you paid for tax prep.
AARP Tax-Aide has IRS-certified experts who offer free tax prep help and more than 4,000 locations nationwide.
You’ve probably seen some of these fly-by-night tax places in the neighborhood. Many set up shop by renting storefronts early in tax season. They often promise unreasonably large refunds -- even if you have little to no documentation -- and they typically require upfront payment for services in cash only.
Unfortunately, they usually don’t even give you a receipt or signed returns, and by the time you notice an issue (such as not getting an expected tax refund), the scammer has vanished.
“Most tax professionals offer excellent advice and can really help people navigate complex tax issues. But we continue to see instances where taxpayers are “ghosted” by unscrupulous tax preparers with bad advice who quickly disappear,” said IRS Commissioner Danny Werfel, in a press release this year warning people about these con artists.
Ghost preparers count on taxpayers being unaware of the details of their own taxes.
They exploit the fact that many filers, especially in lower-income communities, have simple returns that qualify for earned income tax credits and child tax credits. By scamming dozens to hundreds of taxpayers, these predators can steal hundreds of thousands, or even millions, in fraudulent refunds.
In one recent case, a Houston area tax preparer, named Johnathan Perry of X-Pert Taxes, was accused of stealing $4.4 million while preparing more than 4,000 tax returns from 2017 to 2022. In September 2023, a federal court banned Perry from ever preparing federal taxes again.
The Department of Justice has been cracking down in recent years on fraudsters, but many ghost preparers keep going strong, or new ones routinely pop up in every state.
The Harm Caused by Ghost Preparers
Victims of these tax scams are often left to deal with the aftermath. And it’s not fun.
If you get duped by a ghost tax preparer, you’ll have to re-file accurate returns, which delays your refund and wastes your time going back and forth with Uncle Sam.
The IRS may flag a false return for audit, subjecting you to more stress, and the need to prove you were scammed. In extreme cases, if audits uncover large enough fraud, victims can face criminal tax fraud charges themselves and have to sort out that mess.
Ghost preparers also expose you to the risk of identity theft when your personal information is mishandled.
Once someone has your social security number, that’s like the keys to the kingdom for financial swindlers. They can open bogus credit accounts in your name or take out unauthorized loans – creating a financial and credit nightmare for you.
How to Spot a Ghost Tax Preparer
There are some key warning signs that a tax preparer may be shady – and not worth hiring.
Here are 10 common red flags that suggest you’re likely dealing with a ghost tax preparer:
- Their office is temporary or not clearly advertised.
- You never meet them in person; they only offer remote service.
- They promise extravagantly large refunds without seeing documentation.
- They charge fees based on the size of the refund or as a percentage.
- They want to e-file returns as soon as possible after connecting with you.
- They require payment in cash only.
- They fail to provide a receipt.
- They suggest you supply false information to the IRS to get a bigger tax refund.
- They don’t sign returns or provide proof of a Preparer Tax Identification Number.
- They say your refund must be first deposited into their account and then “distributed” to you.
Protect Yourself From Tax Scams
To keep yourself safe during tax season, and all year long, only work with preparers who will sign your return and provide valid identification, particularly their Preparer Tax Identification Number. By law, anyone getting paid to prepare, or even help with filing federal tax returns must sign the return and have a PTIN.
You should also research a preparer thoroughly before using their services. Search online for reviews and complaints. Check them out with the Better Business Bureau. If you discover customers with legitimate gripes, simply find another preparer. It’s just not worth the risk.
Additionally, adopting the following best practices regarding signing your 1040 tax form will help a lot: Never sign a blank return that will be filled out later. Review the return carefully before signing. Never let a preparer file before you have reviewed the complete return yourself. Also, make sure the preparer is willing to e-file and provide you with a physical copy of the return.
Finally, avoid tax preparers who base their fees on the size of your tax refund check. This signals they may manipulate your return.
If you are victimized by a tax preparer or you think something’s amiss, report suspicious preparers to the Treasury Inspector General for Tax Administration at 800-366-4484, or use IRS Form 14157, Complaint: Tax Return Preparer.
Finding Reliable, Trustworthy Help
Millions of people just like you need help filing their taxes. So you just have to locate an ethical, competent tax preparer, and sidestep the crooked ones.
To find trustworthy, professional tax preparers, consider free volunteer tax prep services if you qualify by visiting www.irs.gov/VITA.
You can also use the IRS Free File service and get guided help online from IRS partner sites if you make $73,000 or less a year.
The AARP Foundation Tax-Aide Program is another great resource. AARP Tax-Aide has IRS-certified experts who offer free tax prep help and more than 4,000 locations nationwide.
Avoid being scammed by knowing the warning signs, doing thorough research, following safe practices, and trusting your intuition.
If a tax preparer seems sketchy or too good to be true, they very likely are.
Protect yourself and your hard-earned money from conniving ghost tax preparers who are looking to make a fast buck.