IRS Warns of Tax Preparer Fraud

*Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months, or even years, after the return has been filed. Avoid preparers who shut down their offices after tax season.

*Check the person's credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in the event of an audit.

*Never sign a blank return.

*Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

*Reputable preparers will ask to see receipts and will ask multiple questions to determine whether expenses, deductions and other items qualify.

The IRS could have implemented preparer regulation on its own earlier, but under prior leadership, the agency opposed preparer regulation, in part because of concern that administering such a program would require the IRS to divert resources from other areas, the IRS's Olson told Congress in her testimony earlier this month.

"When Commissioner Shulman took office, he reassessed that position and concluded that preparer regulation has the potential both to protect taxpayers and to improve tax compliance," Olson testified. "As a result, he decided to make preparer regulation one of the signature initiatives of his tenure."

Since Shulman announced the initiative at a hearing before the House subcommittee in June 2009, the IRS has been working to design new rules regarding preparers, Olson said.

In January, the IRS issued a report setting out a blueprint of its plan.

The agency is looking for more preparers like Rialto, Calif., sisters Karen Denise Berry and Carla Denine, who were each sentenced to serve 72 months in federal prison and ordered in October to pay $14 million in restitution to the IRS for filing false returns.

Their father, Matthew Carl Berry, the patriarch of the family's income tax preparation business, was previously sentenced to serve 108 months in federal prison and ordered to pay over $15 million in restitution to the IRS for conspiring with others to defraud the IRS.

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