Can my tax preparer steal some of my refund?

The maze of forms, tax credits, and IRS rules sends more than a third of all taxpayers in search of professional assistance around tax season, according to data from TaxSlayer. But, while many tax preparers are legitimate and certified, the demand for convenient, low-cost options opens the door for scammers to steal sensitive personal data, financial information, or even your refund.

How can preparers steal tax refunds?

Fraudulent tax preparers request sensitive information and documents so they can prepare your tax return. But, while they prepare your return for submission, they’ll be searching for ways to manipulate the information so they can skim your tax refund off the top, often by changing the direct deposit details.

Then, the fraudster will file your taxes in order to collect the refund themselves. This can cause serious problems, because a tax preparer aiming to steal your refund is likely inflating your tax credits and deductions, and therefore not presenting your financial situation accurately to the IRS.

Here are the main ways that a dishonest preparer can steal a tax refund:

• Changing direct deposit details: If they replace your bank details with theirs, some or all of your refund will be sent to their account instead of yours.
• Splitting the refund into multiple accounts: If they know you’re expecting a refund, they may route one portion to your account and send the rest to a secondary account that they control. In fact, according to the IRS (the Internal Revenue Service, which handles taxes for the U.S. government), your refund can be split into up to three different accounts.
• Altering the return after you sign it: Once you’ve signed the completed tax return, they may change information, inflating credits or deductions to generate a larger refund so they can pocket the difference.

You might only discover the fraud after the IRS confirms that your refund should be higher than what you received, or your tax return is rejected or flagged for containing errors.

Tax preparer scam red flags

Whether they’re licensed professionals or not, ghost tax preparers may hide or minimize their lack of credentials, make unrealistic promises, and keep you out of the loop. In reality, they’re scammers looking to game the system.

The biggest red flags of a tax preparer scam include:

• Big promises: Promising unusually large refunds, especially if they fail to collect your receipts or fully review the credits and deductions you’re eligible for under tax law, is a sign that your preparer has no problem falsifying official, government financial information.
• Percentage-based fees: Charging you based on the size of your refund is more than just an unethical no-no; it's in violation of IRS rules and potentially illegal. Legitimate tax preparers should charge flat fees and communicate them up front.
• Lack of transparency: Refusing to sign your return, failing to provide a copy for your own records, or asking you to sign a partially-completed return are all warning signs that your preparer will (or already did) tamper with your tax or payment information. Take your business elsewhere.
• Lack of credentials: Declining to share credentials, including their PTIN (Preparer Tax Identification Number), or contact information is a warning sign that your preparer isn’t licensed.
• Offers to collect your refund: Your preparer offering to have some of your return sent directly to their account is a huge red flag of a scam. While it’s not illegal to pay your tax preparer from your refund, it violates IRS regulations for the refund to be sent directly to your tax preparer’s account; a third-party refund-transfer service is required for this arrangement to be legitimate.
• Untraceable payment options: Requiring that payment is made in cash or gift cards is highly suspicious and likely indicates that your preparer is trying to avoid fraud detection. Generally, if the preparer is making payment demands instead of providing payment options, it’s a red flag.

You may see guidance telling you to avoid paying your tax preparer via wire transfer or P2P payment apps like Venmo. These payment methods aren’t automatically suspicious, but can be a red flag when combined with other warning signs, like percentage-based fees, lack of transparency, or refusal to provide credentials.

How to identify a legitimate tax preparer

When confirming a tax preparer’s legitimacy, the first item of business is to ask for their Preparer Tax Identification Number (PTIN). This is a number the IRS issues to all professionals who prepare federal tax returns for compensation. Your preparer should provide it upfront and without hesitation.

Many genuine tax professionals, such as Certified Public Accountants (CPAs), Enrolled Agents (EAs), or tax attorneys, also hold additional qualifications. These credentials can usually be verified through professional organizations or state boards.

Signs that you’re dealing with a legitimate tax preparer include them:

• Displaying or providing their PTIN freely.
• Willingly signing the completed return they prepared.
• Explaining deductions and credits in plain language.
• Encouraging you to review the full, completed return before filing.
• Having positive Google, Better Business Bureau, or Yelp reviews.

How to protect yourself from tax preparer fraud

The best defense against tax preparer fraud is staying involved and informed throughout the filing process, even if you’re using a professional service. In practice, that means vetting your tax preparer, closely reviewing all tax materials, ensuring your refund goes to the correct account, and comparing your actual refund against the IRS’s official transcript.

Remember, even if you hire a professional, you, the taxpayer, are ultimately responsible for what’s submitted to the IRS.

To reduce your risk of falling for tax preparer fraud:

• Vet your preparer: The single most important thing to do is check that your tax preparer is certified to do the job. This means reviewing their credentials first, then ensuring they meet our green flag criteria for a legitimate tax preparer.
• Use direct deposit: Have your refund be paid directly into your own bank account (or into a joint account with your spouse). Never allow part of your refund to be sent to an account you don’t control.
• Check your tax return thoroughly: Review your entire return line by line, including personal information and direct deposit details, before it’s filed and keep a signed copy for your records.
• Check your tax preparer’s signature: Confirm that the preparer signs your return and includes their PTIN before it’s submitted.
• Create an IRS online account: Review your tax transcript online to confirm the refund amount the IRS issued matches what you received. Access transcripts by signing in at IRS.gov and selecting “View Your Tax Records.”

What to do if you suspect tax refund theft

If you suspect that your tax preparer stole some or all of your refund, first check your official IRS transcript and confirm that the refund amount you received doesn’t match the amount issued. Your next steps involve gathering documentation and filing a complaint.

Here’s what you need to do if you’ve been scammed by a tax preparer:

1. File a police report: This establishes a formal record of the theft, giving you important evidence to provide when reporting fraud to the credit bureaus, the IRS, and your bank.
2. Gather evidence: Collect all the documentation you can that proves your preparer committed fraud. This may include bank statements, service agreements, emails, phone numbers, or websites.
3. File Form 14157, Complaint: Tax Return Preparer: Fill out Form 14157 online, to allow the IRS Return Preparer Office (RPO) to investigate misconduct, including general negligence, misrepresentation of credentials, or bad business practices. 
4. File Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit: If you file these forms online, this step is included in the previous step when filling out Form 14157. If you’re mailing it in the complaints, print and fill out Form 14157-A as well before sending your report to the IRS. Since the tax preparer stole your refund, it means they intentionally misled you. This affidavit allows the IRS to help correct your records, recover the stolen funds, and send you the amount you’re owed.

Falling victim to a ghost tax preparer might also leave you exposed to other types of identity theft too. While many tax fraudsters just aim to divert some (or all) of your tax refund into an account they control, others may try to misuse your sensitive personal information to open new credit in your name or access your accounts.

To help catch potential threats that go beyond tax return fraud, set up credit, identity, and dark web monitoring to watch for signs that your personal information is being used without your permission or exposed online.

Protect your finances with LifeLock

If a tax preparer steals your refund, there’s a chance they may also misuse the personal information you shared to commit further identity theft. LifeLock can help monitor for signs of fraud, such as suspicious use of your Social Security number or unusual financial activity. And, if identity theft does occur, LifeLock’s restoration specialists and reimbursement coverage will be there to help you recover.

FAQs

What does it mean if my tax preparer is being investigated?

If your tax preparer is being investigated, it means the IRS Criminal Investigation Division (IRS-CI) is investigating them for misconduct, such as fraudulent filings or refund mishandling. If found guilty, your tax returns may be audited, and you could be responsible for back taxes.

Is it safe to do taxes online?

It’s safe to do your taxes via a tax filing website. This actually reduces the risk of error, protecting you from legal and financial consequences. Just be sure to enter your information over a secure network and set strong account passwords to protect your personally identifiable information.

Can a tax preparer take their fee from your refund?

Yes, tax preparers can deduct their fee from your refund, but only with your explicit consent and as long as it's not a specific percentage of your refund. Keep in mind that if you do agree, they should only have access to the portion they’re owed and that portion should be transferred through a third-party service. Your entire refund should never be routed through their personal account.