Tax pros gone bad

Everybody needs help now and then. That’s especially true at tax time, when millions of us turn to professionals we expect to guide us safely through the tax code.

But once in a while, a tax pro becomes more hindrance than help.

Most recent case in point: The IRS yesterday shut down 125 Jackson Hewitt branch offices in Detroit, Atlanta, Chicago and Raleigh, N.C. The tax agency alleges that preparers at these sites, cited as locations "in which fraudulent tax return preparation is encouraged and flourishes," filed fake returns to obtain inflated refunds that cheated the federal government out of $70 million.

Examples of alleged fraud, according to the court documents, included using phony W-2 forms, fabricating businesses and business expenses, claiming fuel tax credits in "absurd amounts" for customers and engaging in "massive fraud" to claim earned income tax credits.

Most of the clients of these franchises were middle-class taxpayers, folks like you and I who head each filing season to the well-known tax prep chain in our nearest shopping center for help. But even when there’s no intentional misfiling, that’s not always a safe move.

Last year, the Government Accountability Office issued a report with the disturbing finding that in a limited study of commercial tax prep chains in major metropolitan areas, all the returns completed in those offices were wrong to some degree.

Even wealthier filers have troubles with hired tax help, although in many of those cases the tax wounds are more self-inflicted as these folks turn to elaborate tax shelters to keep cash out of Uncle Sam’s hands.

Remember KPMG, the global accounting and consulting firm that concocted some tax saving vehicles for clients a few years ago? When the feds ruled that those shelters didn’t meet IRS standards, KPMG agreed to pay $456 million to settle the inquiry.

And just last month, the law firm Jenkens & Gilchrist announced it was closing its offices across the U.S. in the wake of a nonprosecution agreement it reached with the IRS about tax shelters it offered clients.

Oh yeah. All the taxpayers who had returns done by all these tax experts, they’re in some tax trouble, too.

The IRS expects the individuals whose names are on the questionable 1040s to pay their accurate tax bills, along with any interest and penalties if that payment isn’t made on time.

Keeping your tax help from hurting: The first thing to keep in mind is that regardless of who fills out your tax return, whether that person makes an innocent mistake or intentionally tries to put one over on the IRS (with or without your knowledge), you are responsible for what’s on that 1040.

It says so when you sign it. And you must sign it, either on the paper form you snail mail or with the electronic signature that’s just as binding when you e-file.

So you need to be very careful in approving any tax preparer’s work. And even before it gets to the signature stage, you need to make sure that you have confidence in the tax professional you hired.

Before you hand over your tax documents, do due diligence. Investigate several potential preparers and do so thoroughly. This previous post has some tips on just how to do just that.

Once you’re a client, don’t accept his or her every recommendation at face value. Ask questions, get answers and make sure you understand those answers.

This is not a time to let false pride get in the way. If you don’t get it, make the preparer explain it again and again until you do. Of course you don’t know everything about taxes; that’s why you’re there. But a good preparer will be able to explain the whys of the tax code you have a question about in a way that makes sense.

And most importantly, remember the adage that if it sounds too good to be true, it probably is. Ignoring this warning could end up costing you dearly.