Five Warning Signs About a Fraudulent CPA for Real Estate Investing
For real estate investors, hiring a quality CPA can offer welcome relief from worrying about your financial record-keeping and tax returns. While there are many qualified tax and accounting professionals to choose from, not all of them are who they claim to be. Fraudulent CPAs and tax preparers will often try to lure a business owner in with promises of large refunds, and then vanish when the IRS decides your tax returns are inaccurate (at best). As the taxpayer, you will be the one left scrambling to repair the damage, paying hefty fines, or worse. For this reason, when hiring a tax and accounting professional, it’s important to watch for certain warning signs. There are five things in particular that can help you identify a fraudulent CPA before they get their hands on your financial records.
Guarantees of a Large Refund
Tax returns, just like financial records, are as unique as the individual they belong to. No two are exactly alike. For this reason, anyone offering guarantees of a tax refund of a certain dollar amount is likely a fraudster aiming to scam you. Tax returns are complex documents with hundreds of factors contributing to the end result. There is no real way to know for certain an exact dollar amount owed or refunded until each number has been tallied, each calculation made. While working with a CPA throughout the year can help make tax time more predictable, there is simply no way to guarantee a large refund without using illegal deductions.
Their Compensation is Based on a Percentage of Your Refund
Tax and accounting professionals have different ways of determining how much to charge for their services. But if the CPA you are thinking of hiring bases their compensation on a percentage of your numbers, whether that be your tax refund or revenue, it’s time to move on. In such situations, it is in the CPA’s best interest to inflate or misrepresent your numbers to make their own profits higher. This kind of approach can lead to tax and accounting nightmares down the road for your real estate investing business.
False or Misleading Credentials
“CPA” stands for Certified Public Accountant, and in most states is a credential earned through both education (often a Master’s degree) and years of work experience. Any true CPA would be willing to provide proof of their credentials, as well as those of anyone who helps them prepare tax returns and financial documents. By law, anyone who prepares taxes must register with the IRS and receive a Preparer Tax Identification Number, or PTIN. The IRS maintains a directory of everyone who has registered for a PTIN, searchable by the individual’s name and location. One thing that the IRS does not do, however, endorses or otherwise vouch for individuals with a PTIN. It is up to you to determine their qualifications for yourself. If anyone is claiming that they are endorsed by the IRS, that is a big red flag.
They Work Out of a Temporary Pop-Up Shop
While tax and accounting services are necessary for real estate investors all year round, during tax season there is often a sudden increase in storefronts claiming to offer these services. However, if the shop suddenly appears during tax season, there is a good chance that it will disappear just as quickly once tax season ends. These temporary pop-up shops are often used by fraudulent CPAs and tax accountants during times of high demand to stay one step ahead of the IRS and angry past clients. If the office isn’t open year-round or hasn’t been there very long, those are both good reasons to pass on hiring the CPA that works there.
They Ask You to Sign Documents Before They Are Complete
One of the worst mistakes a real estate investor can make is to assume that their tax and accounting professional knows what is best and that there is no need to carefully review the documents he or she creates. By giving a CPA unlimited control over your financial record-keeping and tax returns, you are inviting serious trouble. If a CPA ever asks you to sign a blank form or an incomplete tax return or other documents, that is a sign that something underhanded may be going on. Ultimately, you are the one responsible for the information in your tax and accounting documents, not your CPA. By taking a few precautionary steps and keeping an eye out for these warning signs, you can ensure that you are hiring a quality tax and accounting professional. Once you do find a quality CPA, you can easily provide him or her with any documentation needed from Real Property Management's all-inclusive accounting and reporting system, which keeps all your property management financial information organized in one place. Real Property Management offices provide each property owner client a password-protected online account for easy access to financial reports any time you need. Read more about the services our offices provide on our Real Property Management Services page.