Taxpayer Advocate Service: Your Voice at the IRS

National Taxpayer Advocate Annual Report to Congress

RETURN PREPARER FRAUD

Return Preparer Fraud Graphic: Graphic shows the IRS’s unequal treatment of victims of return preparer fraud.  The IRS will reimburse taxpayers whose paper refund checks were cashed by unscrupulous preparers but will not reissue refunds to those whose refunds were stolen by theft of direct deposits.

 

VICTIMS OF RETURN PREPARER MISCONDUCT NEED MORE HELP FROM THE IRS

Unscrupulous tax return preparers sometimes change their clients’ returns without the clients’ knowledge or consent to obtain inflated refunds and divert the extra money into their own bank accounts. The taxpayer is unaware of the preparer’s actions and receives no financial gain from them, but is left to deal with the IRS when the discrepancy is found.

Even though the IRS will remove the preparer’s inaccurate return from its systems and process the correct original return from the taxpayer, it will not issue a second refund to the taxpayer if the preparer absconded with the initial refund from the falsified return. When a taxpayer is victimized by a preparer who receives such a refund by paper check, the IRS will issue a replacement refund to the taxpayer, but the IRS will not issue a replacement refund when a taxpayer is victimized by a preparer who receives the refund due by altering the bank routing number on a direct deposit request, even though the IRS has received legal advice that it may do so. In other words, the IRS appears to be emphasizing budget concerns over legal principles.

Read the Full Discussion

When a taxpayer is victimized by a tax return preparer who receives a fraudulent refund in the taxpayer’s name by altering the bank routing number on a direct-deposit request, the IRS will not issue a replacement refund. The National Taxpayer Advocate believes the taxpayer-victim is legally entitled to receive the refund and the IRS has no legal basis to withhold it.

- Nina Olson, National Taxpayer Advocate

Other Most Serious Problems