Tax Strategies & Credits

The Dangers of Hiring an Underground Tax Preparer

The Dangers of Hiring an Underground Tax Preparer

Is your tax preparer registered with the Internal Revenue Service? The IRS recently reported that 150,000 tax professionals have not renewed their PTIN with the IRS. Many of these tax preparation experts may have gone underground in lieu of fulfilling their responsibilities to the IRS -- and still more may have never been registered at all. What are the dangers of an underground tax preparer, and how can you tell the difference?

What Is a IRS PTIN Registered Tax Preparer?

The IRS monitors individuals who prepare taxes for money; in other words, anyone who is paid for the preparation of a tax return. All paid preparers are required to register with the IRS receives a PTIN: a Preparer Tax Identification Number. This PTIN must be included on all of the returns that the individual prepares for their clients. Apart from the initial registration, a PTIN creates an audit trail for the IRS to follow; they now know who is preparing certain tax returns. Without a PTIN, the IRS must assume that an individual has prepared their own tax return.

Why Is Using an Underground Tax Preparer Dangerous?

There are a multitude of reasons regarding why dealing with an underground tax preparer is dangerous. While acquiring a PTIN does not necessarily guarantee that a tax preparer is knowledgeable or skilled on its own, it does render a certain amount of accountability. Here are just a few of the issues that an individual could run into when using an underground tax preparer:

  • They can't represent you in the case of an audit. Technically, they don't even exist for the purposes of your tax return; since they can't file your return with a PTIN, they file your return as though you, yourself, completed it. Consequently you'll be on your own if any errors do occur. In general, when you file a tax return this way, you have to sign that you prepared it yourself. Thus all the liability for any lies or errors that are found on your tax return become solely your own and you can’t use the excuse that you had a professional prepare it.
  • They don't have to abide by a code of ethics. There is no regulation for an underground tax preparer because they have opted out of the regulatory system. If your tax preparer isn't using a PTIN, it's because they don't want to be tracked; they don't want their errors or omissions caught and traced back to them. They may be falsifying information on your returns or using your information (such as your dependents) for other returns. All of this can come back to you and complicate your taxes.
  • They may not complete your return correctly. There's no reason for an underground tax preparer to be conscientious about their work. They cannot have their PTIN revoked or their files audited en masse because the IRS simply doesn't know who they are. This could lead to very costly mistakes; you could end up paying far more in taxes than you truly need to. In a worst case scenario, you may discover that your tax return was completed incorrectly years later, and find yourself owing significant back taxes. 

How Can You Tell Whether Your Tax Preparer Is Underground?

There is some good news in this situation. It's relatively easy to determine whether your tax preparer is working officially or "underground." At the very end of your tax return, there is a section for you to sign and a section for your tax preparer to sign. An underground tax preparer will ask you to sign the tax return and mark that it was "self-prepared," rather than putting in their PTIN and their own name under the "Preparer" information. This is a huge sign that your tax preparer does not want to be accountable for anything on your return. You can also search online at the IRS directory website. 

Underground tax preparers aren't held to any of the regulations or laws that registered tax preparers are. Instead, they take advantage of the fact that most of their clients don't realize that they aren't preparing their taxes with the accountability that they should. If you're dealing with a tax preparer that refuses to sign your tax return, you should immediately consult with the IRS. Not only is this tax preparer acting outside of your best interests, but any prior returns that you had done by them could have costly mistakes.

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Lee Reams II

Lee Reams II

CEO

I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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