There are good tax preparers and bad ones. There appear to be plenty of the latter in the Empire State.
The New York Department of Taxation and Finance sent some undercover inspectors to various tax professionals in New York. What they found, as reported in the Wall Street Journal, is enough to make me cringe.
One Queens, New York tax preparer allegedly told an undercover investigator, “I did not declare your full gross income from your business because you will pay a lot of taxes.” That preparer is facing a criminal complaint.
Another reported one-tenth of the taxable income: $13,188 versus $131,884. The Journal didn’t report what excuse was used for that case. And multiple preparers told investigators to shred certain documents so that they wouldn’t have to include it on their tax returns.
But it actually got worse:
In one case, a preparer told an undercover agent to step outside his office and return with a different set of records. When he returned, the preparer told him: “You know why I asked you to do that? Because if I have to swear it, I can say I swear to God that these are the papers you brought to me.”
William Comiskey, Deputy Commissioner of the New York Department of Taxation and Finance, noted that had the fraud gone undetected it would have cost $4 million in tax to federal, state, and local governments. Worse, “evidence of fraud” was found at 40% of the 85 preparers visited.
And this isn’t just a New York problem. A friend of one of my clients was told by his tax ‘professional’ that because options aren’t reported to the IRS you don’t have to claim income earned from options on your tax return. Of course, my client heard that and thought his income was going to be a lot less than he had thought. I had to give the bad news to my client—unless Congress specifically exempts income it’s taxable—and income from options is taxable.
Meanwhile, New York has sent 1,570 “Dear Valued Taxpayer” letters to individuals who used these less than professional tax preparers. Additionally, the state has opened 1,378 fraud investigations through October and had sent 329 cases to prosecutors.
Remember, there’s no free lunch. Use a reputable preparer, and know that if you earn a lot of income you’re going to owe some tax. If it sounds too good to be true it probably is.
