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Avoid tax fraud Select reputable preparer

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NEW YORK (4/10/12)--There's no good time to find out you've been ripped off, but tax season can be particularly distressing. You're already stressed about meeting deadlines and making payments, so it's especially alarming to discover that your tax preparer has scammed you.

That's exactly what some taxpayers had to deal with when TaxMasters, a tax consultation firm in Houston, was charged with defrauding customers across the country (CNNMoney March 30).

A civil trial in Texas alleges that TaxMasters  committed more than 110,000 violations of the state's Deceptive Trade Practices Act. The state claims that TaxMasters lied to customers about contract terms, did not inform customers of its no-refund policy, and caused customers to miss tax deadlines after promising to immediately start work on cases.

TaxMasters and its founder have been ordered to pay $195 million in damages, with $113 million going back to defrauded customers.

While these tax-scam victims will be compensated for the money they lost, it's probably safe to say that they'll be careful when choosing future tax preparers. There are ways to ensure that you're hiring a trustworthy preparer.

The Internal Revenue Service (IRS) reminds taxpayers to follow these guidelines when selecting a preparer:

  • Don't be lured by the promise of a larger refund. A return preparer who claims to be able to get you a bigger refund than other preparers should be treated with skepticism.
  • Never pay based on your refund. Steer clear of a preparer who charges a fee based on a percentage of your refund amount.
  • Make sure there's a PTIN. A reliable tax preparer should sign and enter a preparer tax identification number (PTIN) on your return and supply you with a copy for your records.
  • Find out if the preparer will stick around. Will the preparer or firm be available to answer questions about your return for months or years after the return has been filed? If not, use caution.
  • Pay attention to what you sign. Don't sign a blank tax form under any circumstances.
  • Get feedback before you hire. Find out if anyone you know has used the preparer you're considering, and ask about the experience. If you're still not sure, check with the IRS.
Remember that in the end you are responsible for the accuracy of all entries on your tax return whether you complete your taxes yourself or work with a return preparer.

For more information, read "IRS Releases Dirty Dozen Tax Scams" and watch "Getting Tax Records Organized" in the Home & Family Finance Resource Center.