The receptionist at my work was telling me today that the IRS is charging her a $3000 penalty because of improperly filed tax forms. Apparently the person who prepared her taxes reported that she made $13,000 on a non-existent daycare business. In addition, her boyfriend, who filed with the same guy, stated that he made $10,000 off of another non-existent engineering business. I'm thinking this guy was trying to take advantage of them because their both young (early 20s). She's meeting with the IRS tomorrow to address the issue, but he's refusing to pay anything.

If the IRS does hang this on them, does the have a sort of legal recourse? I feel like the preparer would have fiduciary duty to fully disclose and explain what he did on the forms, especially considering her young age.

26.2 said:

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Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

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Also, lol at whoever thinks that they just "won't pay" the IRS anything.

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She's paying if she has to. She claims that the guy skipped over the section when she reviewed it at his office, but she didn't know to ask.

You don't have to defend anything to me, I'm just going off of what you said. You wrote: "but he's refusing to pay anything." This is where my "lol" comment came from. The IRS doesn't mess around. Maybe I'm misinterpreting though.

Also, what I meant from my quote is that her saying he skipped over it won't matter. She signed her name right below the paragraph I quoted. Sounds like they are hosed. Probably a good lesson to learn while they are young. In my dealings with millennials, I've noticed that they don't really seem understand the concept or gravity of contracts, signing their name to something, etc. I wish them the best of luck, but man, don't sign your name to something you don't understand.

Is she being hit with additional tax or a penalty? Unfortunately, the law states that you are responsible for the content on the return, regardless of whether you or someone else prepared it. So she will have to pay the tax to IRS and sue the preparer in court to get anything back. Certain penalties are eligible for a one-time abatement - basically a one-time only get out of jail free card. If this is a penalty she might want to ask for that (it's an RTA in IRS lingo).

What I don't understand is why the preparer would have done that? I don't think there would be anything for him to gain for adding things to the return.

EITC? Did she work during the tax period that is being looked at by the IRS?

read the links above. there's a sweet spot where increased income generates refundable credits in excess of the marginal tax hit

Yeah.. The OP didn't say that is what happened the way I read it. Just non existent income was claimed.

Hopefully the IRS goes after the preparer. That kind of stuff will get him or her a prison sentence. There was a preparer in the Beaumont area who made up stuff to generate refunds. She and her son both were doing it. Not sure what happened to him but she got sent to prison.

I posted on this forum a while back when my brother kind of got scammed. Luckily he had me look at his return before signing. It turned out that the preparer went ahead and forged his name on the return. He also never cashed the return check. He contacted the IRS, tried to do the right thing, and it still took almost three years to resolve. In the meantime, he received threatening letters from the IRS, which required hours of explanation and coordination each time a letter was received.

Was the accountant able to pocket the extra return? I don't understand this scam from the tax guy's perspective.

My guess is these two were blinded by their yuge refund and didn't notice the fraudulent data and the larger than deserved tax prep fee.

I have seen this before and it's always a fly by night type place. We also had someone go to prison for this type of thing in Huntsville.

My advice would be file an amended, pay back the excess and explain what happened. If it's the first time you can get penalties waived. Lol at the guy refusing to pay.

This tax fraud case is pretty local Houston Art Case

If they start throwing the fraud word around it is time to get an attorney. As a CPA, I don't even play around with that stuff.

My Local Case

Apparently I share a last name with one of this guy's associates and got a visit from the IRS CID. As a CPA and tax preparer these crooks give professionals a bad name.

The opportunities are endless for the preparer to scam them... he charged a higher fee, perhaps he fronted them an advance on the return for an exorbitant fee, etc. It's bullsh that they were taken advantage of, but they need to be more intelligent on the situation as well. It would literally take them 30 minutes of research to probably understand the basic return they should have prepared.

erin2003 said:

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Is she being hit with additional tax or a penalty? Unfortunately, the law states that you are responsible for the content on the return, regardless of whether you or someone else prepared it. So she will have to pay the tax to IRS and sue the preparer in court to get anything back. Certain penalties are eligible for a one-time abatement - basically a one-time only get out of jail free card. If this is a penalty she might want to ask for that (it's an RTA in IRS lingo).

What I don't understand is why the preparer would have done that? I don't think there would be anything for him to gain for adding things to the return.

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Yeah, the $3000 is all penalty, she hasn't received the tax return check yet. And for someone with a 3 year old and a ~25k job that's ridiculous. I'll pass on the info about the penalty abatement, that's the most helpful info here.

As far as incentives... I don't know. Maybe he gets a kickback or it's not a flat rate service.

Chance Chase McMasters said:

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Was the accountant able to pocket the extra return? I don't understand this scam from the tax guy's perspective.

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My best guess is that this is the incentive. And it was caught early because they are in the process of buying a house and the bank noticed and said wtf is this?

26.2 said:

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In my dealings with millennials, I've noticed that they don't really seem understand the concept or gravity of contracts, signing their name to something, etc. I wish them the best of luck, but man, don't sign your name to something you don't understand.

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I'll ignore the ******y-ness, and just address where you are blatantly incorrect. You are overestimating the power of contracts. This isn't a libertarian society and abuses of an imbalance of power in negotiations (like there clearly is here) will certainly cause fiduciary issues. Just because you scribbled your name on a piece of paper doesn't hold you to its writings 100%.

wasabi1787 said:

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26.2 said:

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In my dealings with millennials, I've noticed that they don't really seem understand the concept or gravity of contracts, signing their name to something, etc. I wish them the best of luck, but man, don't sign your name to something you don't understand.

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I'll ignore the ******y-ness, and just address where you are blatantly incorrect. You are overestimating the power of contracts. This isn't a libertarian society and abuses of an imbalance of power in negotiations (like there clearly is here) will certainly cause fiduciary issues. Just because you scribbled your name on a piece of paper doesn't hold you to its writings 100%.

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I think everyone understands that, but I don't think this really applies here. Somebody signed a tax return and didn't even look over it enough to see that it had fradulent employment? This isn't like a 50 page contract where one sentence was cleverly obfuscated to confuse people.

I feel bad for these folks, but I think saying "read the contract" is pretty fair here.

The fact that he intentionally skipped over it would be very important in court. But it's really not relevant as long as she can get an abatement.

wasabi1787 said:

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The fact that he intentionally skipped over it would be very important in court. But it's really not relevant as long as she can get an abatement.

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Here's what I'm trying to explain to you. Form 1040 is very clear. You sign your name DIRECTLY BELOW the paragraph that says:

Quote:

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Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

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Why would you sign your name to something that you don't understand after reading this paragraph? This isn't something that the preparer skipped over. She literally had to read this paragraph when finding the spot to sign her name.

Fairly common scam. The fictional $10k from side business put their income at the top of Earned Income Credit bell curve. I can nearly guarantee tjat is what happened here.

26.2 said:

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wasabi1787 said:

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The fact that he intentionally skipped over it would be very important in court. But it's really not relevant as long as she can get an abatement.

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Here's what I'm trying to explain to you. Form 1040 is very clear. You sign your name DIRECTLY BELOW the paragraph that says:

Quote:

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Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and accurately list all amounts and sources of income I received during the tax year. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

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Why would you sign your name to something that you don't understand after reading this paragraph? This isn't something that the preparer skipped over. She literally had to read this paragraph when finding the spot to sign her name.

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Are you the guy that reads every word on every insurance contract and on the paperwork you sign when you buy a car? And you got advance copies of them and when you bought your home(s) so that you could do so, right? lol

birdman said:

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Fairly common scam. The fictional $10k from side business put their income at the top of Earned Income Credit bell curve. I can nearly guarantee tjat is what happened here.

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I agree.

why are they paying tax preparers to begin with? do they have a complicated situation?

I prepare s tax return that is, literally, one W-2.

Some people just don't want to/ don't feel confident preparing their perm tax returns.

combat wombat said:

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I prepare s tax return that is, literally, one W-2.

Some people just don't want to/ don't feel confident preparing their perm tax returns.

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I have never had any that had just one document needed to do the return but have had several that only had 3 or 4. As you say, some of them just don't want to deal with it, and don't want to go to Walmart or H&R Block to get it done. Many are widows a generation older than me and they just want me to do the thing.

Yeah. I might just not charge her this year. Well, I'll charge her what it costs me, since I have PRP license and also pay by return to efile.

What do you use? We have used pro series for decades but frustrated with it the past couple years.