PHOENIX (3TV/CBS 5) – It’s time to do you taxes, so you find a tax preparer and hand over all of your paperwork. But beware of who you choose to do the job. “The big thing we’re seeing in the state of Arizona is return preparers creating fake businesses,” said IRS Criminal Investigation Special Agent Brian Watson.
With a fake business, it looks like there’s a big financial loss. It offsets your income, and you get a bigger refund. “You’re happy, you think until you get that letter later in the year when the IRS or the state of Arizona is asking you to substantiate that business,” Watson said.
During Watson’s career, he’s seen all kinds of fake businesses on tax returns, from landscaping to carpet cleaning. “We go out as special agents and interview these people and we’ll ask, ‘Did you create this business?’ And they’ll say, ‘No. I’ve never heard of it,’” Watson said. “The lesson to be learned is if you do go to a paid return preparer, a good return preparer will go through that return with you page by page, line by line. If there are deductions you don’t recognize, or even worse a business you don’t own, you need to amend that return and go to a new tax return preparer.”
Even if you didn’t know about the fake business buried in your return, you’re still the one on the hook for the consequences. “[The unscrupulous tax preparers] disappear when tax season is over and you’re the one who ends up having to pay the penalties and the extra tax that you owe,” Watson said, adding it is also critical to beware of so-called ghost preparers who refuse to put their names on returns they complete for clients.
To date, the average federal tax refund is $1,963, according to the IRS. That’s about 11% less than last year’s average refund.
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