This article focuses specifically on situations where a tax return preparer either altered a customer's tax return without their knowledge/consent or misdirected all or a portion of the customer's tax refund. A “return preparer” is any individual who either: (1) preparers a substantial portion of a federal tax return for compensation; or (2) employs one or more persons to preparer a substantial portion of a federal tax return for compensation.
Most paid tax return preparers are professional, honest, and trustworthy. But there are plenty of dishonest return preparers who emerge each tax season looking to make a quick buck at the expense of unwary customers. These dishonest tax return preparers often report fictitious income amounts, false deductions, and unallowable tax credits on returns they prepare in order to obtain inflated refunds for customers. In turn, the preparers charge unconscionable preparation fees (sometimes in excess of $1,000) to increase profits.
Unfortunately, most individuals who fall victim to tax return preparation fraud end up paying the hefty price because the law holds taxpayers ultimately responsible for the items listed on their return. The IRS provides several different options for reporting return preparer fraud and misconduct, and offers a variety of relief options to victims. This article focuses on the relief options available under the IRS's Return Preparer Misconduct (RPM) program.
Perform Quick Review of Tax Return
First and foremost, you should always thoroughly review your income tax return prior to signing it. If you did not thoroughly review the return prior to signing it, be sure to perform at least a quick review of the following fields on the return to ensure that the information reported by the preparer was accurate:
Make sure the income amounts reported on Line 1 match the total amounts listed on your Forms W-2 and 1099;
Check to see if the preparer reported any unrecognized charitable deductions or medical expenses on a Schedule A (Itemized Deductions)—this is a common issue;
Check to see if the preparer filed a Form 8863 (Education Credits) with your return. If so, look at Lines 27 and 31 on page 2 to see if the preparer reported any unrecognized amounts for education expenses—this is also common issue; and
Check the account number and routing number listed in line 35 on page 2 to ensure that it matches your bank account information—this is the account where your refund will be deposited.
Return Preparer Misconduct (RPM) Program
The RPM's objective is to assist taxpayers who report they are victims of return preparer misconduct. Importantly, the RPM covers only those situations where a customer interacted with a return preparer for the tax year in question, but (a) did not authorize the preparer to file a return, (b) claims that the preparer altered the return prior to filing it; or (c) claims that the preparer misdirected all or a portion of the customer's refund. For any other situation (e.g., identity theft or other preparer misconduct), taxpayers should review the IRS's Taxpayer Guide to Identity Theft and/or file a complaint with the IRS's Return Preparer Office.
Required RPM Complaint Documentation
Individuals seeking relief under the RPM must submit a "complete" complaint to the IRS, which consists of the following:
Form 14157-A (Tax Return Preparer Fraud or Misconduct Affidavit);
Form 14157 (Return Preparer Complaint); and
Sufficient documentation to substantiate the allegations.
Relief & Resolution
There are four relief categories under the RPM processes. The relief available to you is based upon the specific category assigned to your claim.
Category 1: Unauthorized Filing
The taxpayer was in contact with a preparer for the year of filing, but did not sign or authorize the filing of a return. However, a return was filed with the taxpayer’s name and taxpayer identification number (TIN).
Potential Relief: The IRS will administratively adjust the taxpayer’s account to reflect the taxpayer’s valid return and remove the portion of the refund attributable to preparer misconduct. The taxpayer shall receive a refund for the entire amount due from their valid return, less any amounts already received.
Category 2: Authorized Filing, Altered Return Information and No Additional Refund Due to Taxpayer
The taxpayer was in contact with a preparer for the year of filing and did authorize a return filing, but the taxpayer claims that the information reported on the return (e.g., amounts for income, expenses, deductions, credits, etc.) was altered before it was filed or the return otherwise includes items which the taxpayer did not authorize.
Potential Relief: The IRS will administratively adjust the taxpayer’s account to reflect the taxpayer’s valid return and remove the portion of the refund attributable to preparer misconduct. If the taxpayer’s valid return reflects a balance due, then the taxpayer is liable for the amount owed. If the taxpayer previously received a refund that exceeds the refund amount to which they are entitled to, then the taxpayer will be asked to repay any refund received to which they were not entitled to.
Category 3: Authorized Filing, Altered Return Information and Taxpayer Requesting Additional Refund
Same facts as Category 2 above, but the taxpayer claims they only received a portion of the anticipated refund or did not receive any portion of the refund.
Potential Relief: The IRS will administratively adjust the taxpayer’s account to reflect the taxpayer’s valid return and remove the portion of the refund attributable to preparer misconduct. The taxpayer shall receive a refund for the entire amount due from their valid return, less any amounts already received.
Category 4: Misdirected Refund Only and Taxpayer Requesting Additional Refund
The taxpayer was in contact with a preparer for the year of filing and did authorize a return filing, but the taxpayer claims that the direct deposit information or mailing address reported on the return was altered without the taxpayer’s knowledge or consent, which caused all or a portion of the refund to go to the preparer. The taxpayer claims that they received only a portion of the refund or did not receive any portion of the refund.
Potential Relief: The IRS will administratively remove the portion of the refund misdirected to the preparer and the taxpayer shall receive a refund for the entire amount due from the original valid return, less any amounts already received.
Supporting Documents
In addition to the submission of Forms 14157-A and 14157, individuals seeking relief under the RPM must submit documentation to support their claim of preparer misconduct. Acceptable documentation includes:
The return preparer’s name and address
A signed tax return as the taxpayer intended it to be filed
Official report from a law enforcement agency (e.g., Police Department, State Attorney General, Criminal Investigation, etc.). Report must be signed by a police officer or equivalent and must contain: (a) the tax year(s) involved; (b) the return preparer’s first and last name; and (c) a statement describing the preparer misconduct and theft of refund.
Note, this report is only for required for Categories 3 and 4 where the taxpayer is seeking a refund).
For ghost preparers (i.e., preparers who do not sign the return):
1) At least one piece of evidence corroborating that the person held themselves out as a tax return preparer, which can include:
A business card of the preparer;
Flyer or advertisement showing return preparation services and the name of the preparer;
Professional or business letterhead containing the name of the preparer;
Lease agreement (e.g., for a storefront location that is no longer open) ;
Affidavit of person who hosted or sponsored the preparer (e.g., statement by a church minister acknowledging that the church allowed the preparer to provide preparation services in the church); and/or
Documentation indicating state or local law enforcement investigations against the named preparer for the preparation of tax returns.
AND
2) At least one piece of evidence corroborating that the tax return preparer interacted with the taxpayer, which may include:
Cover letter (including the tax return) received from the tax return preparer when the return was prepared.
Form 8879 (IRS e-file Signature Authorization) with signatures or evidence it was received from the tax preparer.
Copy of negotiated check the taxpayer gave to the preparer for payment of services.
Copy of “refund” check the taxpayer received from the preparer.
Credit card statement reflecting charge in the preparer’s name for payment for services.
Receipt from the preparer, reflecting a fee, for the preparation of a tax return for the year in question.
Copy of paper check(s) reflecting the amount received by paper check, if applicable.
E-mail or text messages exchanged between the taxpayer and preparer concerning the tax return preparation.
Where to Send RPM Complaints
If you are submitting a RPM complaint in response to a notice or letter received by the IRS, then send the complaint to the address contained in the notice or letter.
Otherwise, you may send the complete RPM complaint to the IRS by either:
Fax - (855) 889-7957; or
Mail - This is the same address where you would normally mail your Form 1040. Use the following link to quickly locate the appropriate address.
Once the IRS receives a complete RPM complaint, it generally has 180 days to reach a resolution. To inquire into the status of your RPM complaint, call the IRS’s Identity Theft Victim Assistance Division (IDTVA) at 1-855-343-0057.
Note, an RPM complaint should NOT be sent to the IRS’s Return Preparer Office.
About the Author
Attorney Jordan D. Howlette is the founder and managing attorney of JD Howlette Law, a civil litigation and business law firm focused on delivering high-quality legal services to individuals and businesses in a timely, cost-efficient manner. Prior to establishing JD Howlette Law, Jordan worked as trial attorney in the Tax Division of the U.S. Department of Justice, where he successfully litigated dozens of civil tax cases on behalf of the United States in federal courts around the country, securing millions of dollars in favorable judgments while also advocating for equitable justice. He is intimately familiar with the procedures, strategies, and processes of litigating cases from start to finish in court and with resolving multi-faceted civil disputes involving high-dollar amounts, complex statutory and regulatory provisions, and diverse parties from different jurisdictions.
DISCLAIMER: The information in this article is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from JD Howlette Law or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this article should act or refrain from acting on the basis of any information included in, or accessible through, this article without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.