Jeff (names have been changed) was retired from the Navy, residing in Lemoore near the naval air station, close to many of the friends he served with. Married and the father of a young child at home, he wasn’t exactly pleased with the bite taxes took from his military pension.

“I used a computer tax program, thinking that I had done everything legal to reduce my taxes,” he explained, “until we were introduced to Andrea in 2008. She had her own tax preparation service which she ran from home. My wife’s friends recommended her as she had saved them thousands of dollars.

“Andrea studied our records, looked up with a big smile and said that she could save us a great deal of money because I had done our taxes incorrectly, missing important deductions. She told us to just leave everything with her, and she would call when we were to pick up the returns for filing.”

We signed – Andrea did not

Several days later, the couple went to Andrea’s home, paid $300 for preparing the two federal and state returns, and she watched as they both signed.

But Andrea did not sign, and that was a serious violation of both state and federal law. But our trusting pair didn’t know it at the time.

Like far too many taxpayers, they did not read or understand language which appears right next to the signature lines: “Under penalty of perjury, I declare that I have examined this return, accompanying schedule and statements, and to the best of my knowledge and belief they are true, correct and complete.”

She got us a $6,500 refund!

In a few weeks, their faith in having selected the right tax preparer was rewarded with a tax refund of over $6,500.

As a satisfied customer is the best form of advertising, Jeff and his wife told all their friends about Andrea, many of whom later used her services. She did their 2009 taxes and again obtaining a nice refund. “We would have continued going back to her, but that letter from the IRS in late 2010 changed everything,” Jeff angrily stated.

“We have changed your tax return for 2008. You owe $10,000 in additional taxes and interest,” the IRS letter stated. When they phoned Andrea and asked for an explanation and help, she promised to call them back, but never did.

What do you mean, tax fraud?

After she refused to help, someone suggested that they should speak with a registered or licensed tax professional. “A very distraught couple came into our office, holding the IRS letter,” Mary Beth LaMunyon-Jones, a California registered tax preparer told You and the Law. She owns H & R Block tax offices in Central California and has been in this field for more than 25 years.

The following was her analysis of just how much trouble these people were in, and how they got there:

“We see this so often – people who have been referred to a friend of a friend who does taxes and promises great refunds. In this case, they tangled with an illegal, unregistered tax preparer who caused the couple to commit what the IRS can look at as tax fraud.

“She conned them into thinking that Jeff had been doing their taxes incorrectly, and she knew a much better way of filling out the returns. Even though married and living together with their child, the preparer had Jeff sign a separate return as being single. As to the wife – again, knowing that she was married – had her file as head of household, claiming the child, which gave earned income tax credits not otherwise entitled to had the return been filed correctly.”

“To make matters worse, the preparer did not tax Jeff’s military retirement at 100 percent as it should have been, and when this happens, the results can be dramatic. The IRS can deny a taxpayer earned income tax credit for up to 10 years if, in their investigation, they discover the taxpayer is fraudulently applying for the credit,” she pointed out.

“A routine, computerized cross-check of earlier returns – which the husband had in fact done correctly – revealed what had taken place. Since the preparer did not sign as she was supposed to, the IRS had no recourse against her for preparing tax returns, fraudulently or negligently.

“Between state and federal, for 2008 and 2009, this situation cost an additional $20,000 in taxes and penalties to a trusting couple, who wanted to believe that they had found someone fantastic at getting large refunds from the government. The red flags were all over the place, but like so many people who really are innocent, they didn’t see them,” she concluded.

Next week: What are those red flags? How do you protect yourself?

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

The post If you pick the wrong tax preparer appeared first on Dennis Beaver.

Only about 40 percent of Americans do their taxes themselves. The rest of us hire a professional tax preparer, perhaps a CPA, or use a tax preparation service company such as H & R Block or Liberty Tax Service.

“Who you hire matters in ways far more important than most taxpayers realize, because of the consequences of using the wrong preparer,” warns Mary Beth LaMunyon-Jones, who is a California registered tax preparer and owner of H & R Block tax preparation offices in Central California.

‘I know what they don’t’

“You can innocently become victims of a dishonest preparer. Most taxpayers do not understand the rules. They tend to believe the preparer who promises large refunds, claiming to have superior knowledge and skill in filling out returns, which most other preparers lack,” she observes.

“Like most con artists, these people are convincing. The taxpayer now thinks that who they used before wasn’t knowledgeable, and more importantly, not willing to go to the mat to help them, but now they have a real fighter on their side.”

Last week’s article described one such couple who were referred to a woman known for getting her clients substantial tax refunds. She had them sign falsified returns, resulting in thousands of dollars in additional taxes, interest and penalties – not to mention the very real risk of prosecution for tax fraud when it came to light years later.

“You want someone who stays within the law, understands tax regulations and how to legally claim all of the deductions or other relief which you are entitled to. When you hear that a certain tax preparer is fantastic at getting large refunds from the government, it is normal to be tempted to use that person. So, to keep yourself and your family out of trouble, it is simply critical to recognize the red flags and always being sure that you are dealing with a legitimate preparer,” cautions La Munyon-Jones.

Become part of the tax return process

“A competent tax preparer will conduct a thorough interview, because an accurate return depends on knowing tax-relevant details of your personal situation. If this is the first time you are using the preparer and are told to just drop off your records and then come back to sign the returns, this is a red flag and can create real problems,” she notes.

“A very common failure-to-interview problem occurs when Destiny, a high school student, graduates in June, joins the military, goes to boot camp, and no longer fits the criteria for being a dependent. If the preparer doesn’t ask certain questions, and the parents just say that everything is the same as last year – forgetting to mention the military – their return will show the child as a dependent.

“Then, when our young soldier files her tax return, after cross-checking names and other information, the IRS sends mom and dad a letter, stating they were not eligible to claim the exemption and now owe more taxes, interest and a possible penalty for failing to file the return correctly.

“In fact, the IRS warns all tax preparers of the importance of conducting a thorough interview, to be sure the exceptions, adjustments amd deductions claimed are appropriate for the client.

“If you pay someone to do your return, it better not say self-prepared on the bottom. You need to be sure that the preparer signs it. If they do not, you cannot trust that person,” she stressed.

Alphabet soup: how to check out your tax preparer

“You cannot base the selection of a tax preparer on references alone,” LaMunyon-Jones firmly maintains. “Experience and having satisfied clients is no guarantee that the preparer is legally performing services, which, if not done according to law, can cost you thousands of dollars over many years, so use databases available to see if your preparer is legal,” she concluded.

You can easily see if the person you are using to do your taxes is legal by going to www.ctec.org. CTEC stands for the California Tax Education Council and oversees registration requirements for tax preparers. Unless you are using a CPA, an attorney or enrolled agent (EA) to do your taxes, California law requires the preparer to be registered, and that they: 1) Sign the return; and 2) Have a $5,000 surety bond.

Adding to the alphabet soup of new – and long overdue – consumer protection regulations: The IRS now requires anyone who, for a fee, prepares or helps prepare federal tax returns to obtain a PTIN, or Preparer Tax Identification Number. The Franchise Tax Board estimates it will impact 80,000 California tax preparers.

Indeed, all of this isn’t merely taxing, but may no doubt cause an H.A. (headache).

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.

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