Why Some Experts Predict Potential Rise of ‘Ghost’ Tax Preparers

Tax professionals say there could be ramifications to the industry due to the COVID-19 pandemic

SACRAMENTO, Calif.--(BUSINESS WIRE)--​It is a problem that continues to haunt federal and state enforcement teams. Self proclaimed “professional” tax preparers who lure taxpayers in with low fees, often touting “big and fast” tax refunds, then disappear right after the tax filing deadline hits the stroke of midnight.

“Eventually the taxpayer is left with a financial mess and the tax preparer is nowhere to be found. We call them ghost tax preparers,” said Susie DiMaggio, chair of the California Tax Education Council (CTEC), a state-mandated nonprofit organization that manages the registration of 40,000 tax preparers.

“There is concern we may see more of them due to the COVID pandemic. Scammers are known to take advantage of hardships, especially when there’s stimulus and additional tax refunds at play,” DiMaggio said.

Here’s how ghost tax preparers work. ​They print out tax returns for clients, tell them to sign and mail it out. What many taxpayers fail to notice is the tax return will not show the tax preparer’s signature. For electronically filed tax returns, their name is also left out. These tax returns are filed as “self prepared.”

“The law requires paid tax preparers to sign client tax returns,” DiMaggio said. “That’s what makes these so-called ‘ghosts’ scary. They purposely don’t sign so they’re not responsible for any consequences. And there’s always many reasons why they want to stay hidden.”

Other typical scams include...

• Sticking a business label on the tax return instead of signing it by name. Clients get the label copy so it looks as though they signed it; however, a blank copy without a business label is filed.
• Claim they “forgot” to sign the tax return and promise to sign “later” after payment is received.
• Require payment in cash only and not provide a receipt.
• Invent income to qualify their clients for tax credits.
• Claim fake deductions and boost the size of the refund.
• Direct refunds into their bank account instead of the taxpayer’s account.

​California taxpayers should always verify the tax preparer is legally qualified. State law requires anyone who prepares tax returns for a fee to be either an ​attorney​, ​certified public accountant (CPA)​, CTEC-registered tax preparer (CRTP)​ o​r ​enrolled agent (EA)​. Taxpayers can submit anonymous reports about questionable tax preparers to CTEC.org. All reports are sent to the California Franchise Tax Board (FTB), the enforcement arm for CTEC. Unregistered tax preparers could face penalties up to $5,000.

CTEC is a nonprofit organization that was established in 1997 by the California State Legislature to protect taxpayers against fraudulent and incompetent tax preparers.