‘OIC mills’ and ‘ghost’ preparers in ‘Dirty Dozen’

By Paul Bonner

The IRS took aim Tuesday at unscrupulous tax preparers and advisers in the third of its ongoing annual "Dirty Dozen" series of news releases warning of bogus or ill-advised tax ploys.

On Monday, the Service described several common ruses by which thieves steal taxpayers' personal information to commit refund fraud and other crimes. Last week, the Service described four schemes that purport to reduce or eliminate taxes but fall afoul of tax laws.

OIC mills

In Tuesday's Dirty Dozen release (IR-2022-119), the IRS highlighted pitches sometimes seen in late-night local television ads directed at taxpayers who owe tax debts. While a taxpayer may legitimately enter into an offer in compromise (OIC) with the IRS to pay an agreed amount based on the taxpayer's calculated ability to settle a larger tax debt, these "OIC mills" make exaggerated claims for how much their promoters can thereby reduce a tax debt. They might promise to do so for "pennies on the dollar" but then charge exorbitant fees, often in the thousands of dollars, the IRS said. Promoters may even encourage filing an OIC application that they know is ineligible.

"No one can get a better deal for taxpayers than they can usually get for themselves by working directly with the IRS to resolve their tax issues," IRS Commissioner Charles Rettig said in the release.

The IRS offers self-help OIC resources, principally its online Offer in Compromise Pre-Qualifier questionnaire, which helps individual taxpayers determine whether they are eligible. If they qualify, taxpayers should consult a reputable tax professional for assistance, the IRS suggested.

'Ghost' preparers and inflated refunds

The IRS noted that paid income tax preparers are required by law to sign the returns they prepare for compensation and to include on the return their valid preparer tax identification number (PTIN). A preparer's refusal to digitally sign a return and include a PTIN generally is a tell-tale sign of illegal or unethical motivation, the IRS said. These so-called ghost preparers may promise a bigger tax refund than can be obtained through other preparers. They may improperly fabricate deductions or spuriously increase the client's income to boost the amount of claimed tax credits by more than any tax on the additional income.

Other signs of shady behavior by preparers include requiring payment in cash and refusing to provide a receipt or directing taxpayers' refunds into the preparer's own bank account.

The IRS also reminded taxpayers that they remain responsible for the contents of their tax return even if it is prepared by someone else.

The IRS also featured OIC mills and ghost preparers in the past two years' Dirty Dozen lists.

— To comment on this article or to suggest an idea for another article, contact Paul Bonner at Paul.Bonner@aicpa-cima.com.

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