Episode 4 | 13 Mins

Is Your Preparer A Fraud? 5 Red Flags

by | Jan 15, 2020 | 0 comments

Anybody can be a tax preparer these days. The barrier to entry is low and the tax prep industry is highly unregulated. In this episode, I go over five red flags you should be looking out for when choosing a new preparer.


Hey guys, welcome back to Tech Talk with Kesha. Dante. I am Kesha Jones aka the millennial tech expert. A couple of weeks ago or maybe last week, I got a message via inbox on Facebook from a friend and she was asking me if I heard heard about this new tax prep company that she’s there seemed to be like a direct sales company slash MLM slash network marketing for tax tax prep. And she made the statement like oh my goodness, seems like anybody can be a tax professional. And the truth is, unfortunately, anybody can be a tax professional, anybody can get a p 10. Or not. Anybody can get professional software or not. And anybody can take your documents and prepare your return and charging money for it. The IRS tries to regulate the taxi industry a couple of years ago. Somebody got me And basically said that the IRS requiring us to get to have continuing education every year was a financial burden on her business. So she actually sued the IRS about it. And I’m pretty sure was like class action. So I believe like she started it, but other people jumped in. And the court actually came back and said she was right. IRS has no authority whatsoever to regulate tax repairs. That’s something that Congress will have to do, because Congress is the one that gave the powers of collecting revenue to the IRS. So Congress has not, as far as I know, made any moves to regulate in its actual tax preparation industry. Now, there are some states such as Oregon, California, Tennessee, I’m not to miss the New York. And I think maybe even some more that actually do have some kind of regulation in place for people who prepare taxes within those states. But other than that, it is wide open. And because it’s January, because a lot of people are probably going to be looking for new tax professionals, whether they’re all professional, just kind of retired or moved or is no longer doing taxes doing something else, or they’re, you know, some people just hop around every year to different tax professionals. So I wanted to go over at least five red flags look for before you hire somebody. And I’ll tell you about them in just a second. So the thing with the tax preparation industry, like I said, is that it is not regulated. If I wanted to go get my hair done in somebody’s salon, that person has to have a license. If I’ll go and get my nails done, that person has to have a license, but I don’t have to have a license to prepare taxes. determines what I do need is a p 10, which is a prepared Taxpayer Identification Number. I kind of mentioned it earlier. And basically what it does is it lets the IRS know that I prepared your tax return. And it’s my way of signing the return without having to use my social. So it’s basically an identification number for tax repairs. And so, if your tax professional does not have a petain chances are, you know, hockey that they are not legit. So every person that gets paid to prepare tax returns has to have a paetynn. If they don’t have a pizza, they can do your taxes. They just can’t charge you for it is required for every paid prepare to have that number so that the IRS can track what returns they do and if they don’t have that number, then again, they can’t charge you, it used to be that we can put our social security number on the return and still get, you know, still be allowed to be paid. But one of the things that the IRS has kind of moved towards is requiring that everybody has the paetynn. And I, you know, for me personally, I appreciate that because I don’t want my social security number out on a bunch of documents, a bunch of tax returns. But yeah, if you’re a professional, or potential tax professional, doesn’t have a paetynn especially if they don’t even know what a paetynn is. Run, okay, just run as fast as you can’t get out of there because they are required to have one they’re like 60 something dollars a year. But the thing is, just because they have a p 10. doesn’t necessarily mean that they’re legit. Because again, and $60 a year is not a lot of money and you apply for it to get it so there’s really no background check or anything like that involved. So yeah, number one is if you’re prepared doesn’t have a p 10. Run. Okay. The second one is if they use your last pay stub to file your tax return. So first of all, understand for a lot of people especially that are falling now in January, that their w two will probably match their pay stub, I get it, because a lot of the reasons that you want to wait for the W two is just in case you have some kind of adjustment that the employer has to put on there. That’s not reflected on the pay stub. So I get it if you’ve been working for the same company for more than one year you had a W two from them last year you had you worked for the same job this year. And you didn’t work for any other job. You should you’ve probably feel like you should be able to take your you know, you should be able to complete your tax return because you have all the information right you have the etn from the last w two. You have your blast pay stub, you can probably figure out what goes on there. But the IRS requires us to have a pay stub in order for us to file the return before February 15. Okay, So the W twos are not required to even be issued until January 31. So, before January 31, if you don’t have your W two, then it just means that it hasn’t probably means it hasn’t been issued yet. So you can’t use your last pay stub to file your tax return here you’re prepared prepare shouldn’t be using your last pay stub to file your tax return. Even though you may have the same w two or the same Ei n from the prior year, the IRS actually requires us to use those w two so if they’re using the last pay stub, then you know, red flag, okay. Um, the third is that they guarantee you a refund before even looking at your documents. Nobody can guarantee you a refund. Actually, before I even go to this point, I want to kind of backtrack a little bit to the paste up thing. You can use your last pay stub to estimate your refund. So if somebody If you’re a professional takes your last pay stub, and says, Okay, I’m put everything into the system based on what it says on your pay stub. This is your refund, but bring me your W two when you get it. So we can file it. That’s absolutely fine. But if they actually take your take your pay stub completely returned transmitted, that is a no, no. All right, so moving on number three, again, if they can guarantee you a refund before they even look at your documents, then yeah, that’s probably me, that probably means that they’re going to do some kind of fraudulent stuff in your return. That’s not even that they’re incompetent or that they are, you know, just don’t know the situation because in some cases, people just don’t know that they can’t use your pay stub. Some people just don’t know that you know what the rules are. But in this case, if they’re guaranteeing you that you can get big money back and they haven’t even looked at your documents, then chances are they intend to do Some stuff on your return that they have no business doing, they intend to add a business to get your refund to be where you want it to be, they intend to inflate some deductions at some kids. So that’s definitely a run, go girl get away, right, like get out, do not pass go, just go away. I’m number four is that they use DIY software. So I was scrolling through a Facebook group, I think yesterday and somebody made the comment of like, tax especially was used the same software’s is Turbo Tax and in Tax Act, and they don’t want to charge all this money. They want to charge us all this money when you know they just doing the same thing. They’re using the same software that we would use if we did it ourselves. No, we don’t. We do not. We have professional grade software that is entire way more robust. The internal tax tax at h&r block’s online system or DIY system, our software is not the same, it’s not built the same. As a matter of fact, I was looking for a new software and I reached out to a company and ask them about their, one of their software’s that they have. And she told me now she’s like, She’s like, if you’re a professional, you don’t want that software because it’s not professional grade. It’s basically DIY software that they have made available to tech professionals. And if you’re used to a more professional software, this is not going to cut it for you. So don’t think that, you know, a tax professional just goes on Turbo Tax and goes on to Turbo Tax and creates an account and all of your stuff is in there. And that’s it. They should not be doing that if that’s what your tax professional was doing. Again, run because they should have their own software and software is not even super expensive. I mean, it can be but You can get software for cheap, okay, like I don’t do a whole lot of tax returns during tax season because I do other things. But so I don’t, you know, spend thousands of dollars on tax software, I spent a couple hundred dollars for the software that I have for the clients that I have an SS. So if anybody is using DIY software, then you definitely don’t want to use it. And the one of the reasons that you don’t want to use it as a is not built for professionals and be you they can’t sign it as the paper pair with their petain, which I talked about earlier. So that means that they’re not even telling the IRS that they prepare to return. They’re sending it up as if you did it yourself and you will be responsible for whatever is you’re already going to be responsible with on the return anyway. But if you have it marked as self prepared, then you know that is all you all right. And then the last One is that they charge a percentage of your refund, as their tax prep fee, the IRS actually strictly for business, they prohibit it. At least for people like me who are CPAs and EAS and credential tax professionals. We’re not allowed to charge a percentage of the refund as the tax prep fee. And let’s think about that logically. Right? Because if I charge you 10% of your refund as my fee, what happens when you Oh, do I just not get paid? Do I owe you money like, there that doesn’t make sense. And so that gives people an incentive to make your refund to be as big as possible, so that their refunds are that their prep fee are as big as possible is as big as possible. So if they charge a percentage of your refund, as the tax prep fee, don’t do is called a contingent fee. And the IRS does not allow CPAs attorneys or tax price certified, excuse me, circular to 30 practitioners, which I may talk about later. They don’t require they don’t allow us to even charge those kind of fees. So if they charge a contingent fee for your refund, or your tax prep fees, then you know that’s a red flag, if they don’t have a p 10. That’s the basic, you know, that’s the basic thing to do. The first thing that you should do as a tax professional is get a p 10. So they don’t have that definitely a red flag. If they use DIY tax software. Don’t do it girl. If they guarantee you a refund before even looking at your documents, then you definitely you know, want to go the other way because that’s probably going to be some fraud involved. And if they use your last pay stub to file your return, then you know another red flag So I hope this helps in your decision making process to determine who you’re going to have preparing your tax return this year. drop me a comment in or leave a comment down below. And let me know what you use to determine whether or not you’re going to hire somebody as a tax professional. If you’re listening to me on the podcast that I may or may not have at some point in the near distant future, then make sure you’re following me on instagram and facebook at the millennial tax Bert. You can follow me on twitter at the millennial TP or you can email me your thoughts at Hello at the millennial textbook calm and even if you’re watching me on YouTube, follow me. Like comment, subscribe and I will be talking to you guys soon.

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