The IRS offers some help on choosing a tax preparer.

http://www.irs.gov/individuals/article/0,,id=133088,00.html

From the IRS —

It is important for taxpayers to find qualified tax professionals if they need help preparing and filing their tax returns.

• Unqualified tax preparers may overlook or miss legitimate deductions or credits that could cause their clients to pay more tax than they should.
• Unqualified preparers may make costly mistakes like taking illegitimate deductions or credits that cause their clients to initially pay less tax than they should but later incur assessed deficiencies, penalties, and interest when the errors are uncovered. 

Most reputable preparers will ask to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so they have your best interest in mind and are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.

Remember, no matter who prepares a tax return, the taxpayer is legally responsible for all of the information on that tax return.

Here are some suggestions to consider when hiring a tax professional:

Avoid preparers who:

• claim they can obtain larger refunds than other preparers. If your returns are prepared correctly, every preparer should come up with substantially similar numbers. 
• inflate personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients. Preparers may, for example, manipulate income figures to fraudulently obtain tax credits, such as the Earned Income Tax Credit.
• guarantee results and refunds.
• base fees on a percentage of the amount of the refund. A practitioner may not charge a contingent fee (percentage of your refund) for preparing an original tax return.
• delegate your return down to someone with less training or some unknown worker. 
• exports your return to a foreign country for preparation.  Foreign countries do not have the same security and privacy laws as the United States nor is there any recourse should your information be compromised as a result of lax or nonexistent privacy procedures.

Choose a preparer who:

• you will be able to contact and be responsive to your needs.  You should know exactly who works with your tax matters at all times and how to contact that person.  Ask who will actually prepare the return before engaging services. 
• has the proper credentials meet your needs or if your state mandates licensing or registration requirements for paid preparers.   Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals. Other return preparers may represent taxpayers only in audits regarding a return that they signed as a preparer. 
• signs the tax return and provides a copy
• has no questionable history with the Better Business Bureau, your state’s board of accountancy for CPAs, your state’s bar association for attorneys, the IRS Office of Professional Responsibility (OPR) for enrolled agents or the oversight agency in states that license or register tax preparers (as of 2008, California and Oregon are the only two states that regulate paid tax preparers). 

Ask if the preparer is affiliated with a professional organization that provides or requires its members to pursue continuing education and holds them accountable to a code of ethics.

Check IRS.gov for information regarding abusive shelters and other tax schemes and scams. Remember, if it sounds too good to be true, chances are it is.

The IRS can help many taxpayers prepare their own returns without the assistance of a paid preparer. Before seeking a paid preparer, taxpayers might consider how much information is available directly from the IRS through the IRS Web site such as: 

• e-file for Individual Taxpayers
• Free File
• Free Tax Return Preparation For You by Volunteers

Unfortunately, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. Examples of improper actions by unscrupulous preparers include the preparation and filing of false income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions.

Even if someone else prepares a tax return, the taxpayer is ultimately responsible for all the information on the return. For that reason, taxpayers should never sign a blank tax form. And they should review the return before signing it and ask questions on entries they don’t understand.

In some situations, the client, or taxpayer, may not know of the false expenses, deductions, exemptions and/or credits shown on his or her tax return. However, when the IRS detects a fraudulent return, the taxpayer — not the return preparer — must pay the additional taxes and interest and may be subject to penalties.

The IRS Return Preparer Program focuses on enhancing compliance in the return-preparer community by investigating and referring criminal activity by return preparers to the Department of Justice for prosecution. The IRS can also assert appropriate civil penalties against unscrupulous return preparers.

Excerpts from public record documents on file show the following examples.

Preparers have been sent to prison for anywhere from two to six years and ordered to pay fines and restitution for defrauding the government and tax evasion by preparing false tax returns in order to create or to increase income tax refunds for their clients, and diverting false refunds to their own accounts.

Preparers have also been sentenced for posing as a CPA, preparing false tax returns, using their personal information and forging their signature in identity theft schemes.

Tax scams have included “experts” “decoding” the IRS code to convince clients they were not liable for federal income tax, “finding” deductions the IRS do not want taxpayers to know about, setting up sham nonprofit corporations to avoid taxes and other “zero tax” schemes. 

Tax evasion is a risky crime, a felony, punishable by five years imprisonment and a $250,000 fine.  Audits can lead to investigations and trials.  Relatively speaking, the number of tax evasion trials is relatively few, but the IRS has a conviction rate of 81-89%, and the average sentence is 18 months. 

The IRS is very accommodating when it comes to paying taxes, especially in this recession.  But if fraud is suspected or uncovered, they can be your worst enemy. 

Report suspected tax fraud and abusive return preparers by completing Form 3949-A and mailing it or a letter with similar information to:

Internal Revenue Service
Fresno, CA 93888

Related Links:
Tax Return Preparer Fraud
Choosing a Tax Preparer ( audio transcript; video)