BALTIMORE — It's tax season, and filers aren’t the only ones hoping for a significant refund. Scam tax preparers are tricking individuals into handing over their refunds or taking out high-interest loans.
The Maryland Comptroller’s Office lists tax preparers blocked from doing business in the state after being suspected of filing fraudulent returns.
“It's a surprisingly long list,” said John Hardt the director of the Low Income Taxpayer Clinic for the Maryland Volunteer Lawyers Service (MVLS).
Hardt added there are many ways businesses can make the list.
“If a preparer is claiming that they can get you a bigger refund than anybody else. Well, the only way they could do that is by changing the math on your return. And if you're doing the math correctly on somebody's tax return, it should always give you the same answer,” said Hardt.
This tax season, he's warning filers about several tactics that scammers employ to obtain their refunds. One major red flag is if a business charges a percentage of the refund rather than a flat fee, as this incentivizes preparers to inflate returns by fraudulently claiming credits and deductions.
“Later, when the IRS audits them or takes another look at their account, the IRS will go to the taxpayer to get that money back, not the preparer,” Hardt warns.
While it is difficult to determine the full extent of these scams, the issue was significant enough to prompt the Maryland General Assembly to pass the Stop Scam Tax Preparers Act last year, which increases penalties and improves coordination between the Comptroller's Office and the Maryland Board of Individual Tax Preparers.
“Our office visits are free but people didn't know this, so somebody set up a scheme saying ‘Hey, pay me $500 and I'll get you an appointment with the Comptroller's Office,’” said Comptroller Brooke Lierman during testimony last year in support of the bill.
Another bad deal for filers is refund anticipation loans where preparers offer the expected refund in advance in exchange for a high-interest loan.
Hardt also cautions against hiring seasonal tax preparers, who may be unreachable if the IRS flags your return.
And he's seen preparers target communities reliant on translators.
“They will take advantage of that by saying, hey, I speak your language. I know how to do taxes. I'm going around doing everybody's taxes, but if people aren't able to read the forms that they're filling out the same way the preparer is, it makes them vulnerable to some pretty serious scams,” said Hardt.
And with the possibility of thousands of dollars in refunds, people can't afford to hire the wrong tax preparer.
“For some people, it can be as serious as, can I make rent next month? Can I afford enough groceries that I don't have to go hungry? You know, especially with the Earned Income Tax Credit, that refund can be thousands of dollars and people really rely on them,” said Hardt.
The IRS provides two options for filing taxes for free: IRS Free File is available to taxpayers with an adjusted gross income of $84,000 or less, while Direct File has no income requirement but is only available in 25 states, including Maryland for the first time this year. To learn more about Direct File and which filers could benefit from this free service, click here.
The tax filing deadline is April 15.
The CASH Campaign of Maryland also offers free tax preparation services to those with household incomes of $67,000 or less, but appointments fill up quickly.
And the Maryland Volunteer Lawyers Service helps low-income filers with tax controversies such as disputes over owed taxes, back taxes, and fraud assistance.
When hiring a tax preparer, check their credentials. According to MVLS, a tax preparer should be a Certified Public Accountant (CPA), an Enrolled Agent (EA), an attorney or registered with the Maryland State Board of Individual Tax Preparers (MSBITP). You can check if a preparer is a CPA on the Maryland Department of Labor’s Certified Public Accountants Public Query website. The IRS maintains a searchable list of every Enrolled Agent in the country on its website. And the MSBITP has its own searchable database as well – at the Individual Tax Preparer Public Query website.