Rhode Island Enacts New Law Targeting 'Ghost' Tax Preparers With Stiff Penalties

PROVIDENCE, R.I. — Rhode Island has enacted new legislation aimed at protecting taxpayers from fraudulent and unregulated tax preparers. Governor Dan McKee recently signed into law a bill that amends the state's Tax Preparers Act, specifically defining and establishing penalties for so-called “ghost preparers” who prepare returns for a fee but do not sign them, leaving taxpayers solely liable for any errors or fraud.

This legislation is a significant and welcome step toward safeguarding Rhode Island's taxpayers and business owners from predatory actors in the tax preparation industry. By creating a clear legal definition and tangible consequences for ghost preparers, the state is empowering its enforcement agencies and providing a greater degree of security for the public.

The new law directly addresses a persistent problem identified by both federal and state tax authorities. A “ghost preparer” is an individual who prepares a tax return for compensation but refuses to sign it or include their Preparer Tax Identification Number (PTIN), as required by law. They often instruct clients to sign and file the return as if it were self-prepared. This practice allows unscrupulous preparers to operate outside of regulatory oversight, making them difficult to trace when issues arise.

The primary danger for taxpayers, including small and mid-sized business owners, is that they are left legally responsible for everything on the return. Ghost preparers frequently attract clients by promising unusually large refunds. To achieve this, they may invent income to wrongly claim tax credits, falsify deductions, or claim dependents who do not exist. When the taxing authority inevitably discovers the fraud, it is the taxpayer—not the phantom preparer—who faces audits, substantial back taxes, steep penalties, and interest. In some cases, taxpayers can even face criminal investigation.

The amendment to the 2013 Tax Preparers Act provides the Rhode Island Division of Taxation with new tools for enforcement. It officially defines a ghost preparer within state law and stipulates that any person acting as one is subject to a civil penalty of $500 for each violation. Furthermore, the law classifies the act of ghost preparation as a misdemeanor, adding the potential for criminal charges.

In our experience, business owners are particularly vulnerable to these schemes due to the complexity of their tax filings, which can involve payroll taxes, depreciation schedules, and industry-specific deductions. The promise of a larger-than-expected refund can be tempting, but it often masks significant compliance risks. Engaging a reputable, credentialed firm for professional tax preparation and compliance is a crucial safeguard against such fraud. We guide clients through these exact issues, ensuring their filings are accurate and fully compliant with all regulations. Business owners can learn more about securing professional tax services from C&S Finance Group LLC at csfinancegroup.com.

This legislative action in Rhode Island is part of a broader, nationwide effort to regulate the tax preparation industry and protect consumers. The Internal Revenue Service has for years included ghost preparers on its annual “Dirty Dozen” list of common tax scams. However, federal oversight of tax preparers remains limited. While the IRS requires anyone who prepares federal tax returns for compensation to have a valid PTIN, there are no national competency or educational standards for preparers who are not certified public accountants, enrolled agents, or attorneys.

In the absence of comprehensive federal regulation, many states have implemented their own licensing, registration, and educational requirements. Rhode Island’s updated law strengthens its existing framework, which already requires non-exempt preparers to meet certain criteria. By explicitly targeting the ghost preparer tactic, the state closes a significant loophole that has been exploited by bad actors.

For legitimate tax professionals in Rhode Island, the law reinforces existing standards of conduct and helps level the playing field by penalizing those who operate outside the rules. For businesses and individual taxpayers, it serves as a critical reminder to exercise due diligence when hiring someone to handle their taxes. Red flags of a potential ghost preparer include refusing to sign the return, demanding cash payment without providing a receipt, and being unable to provide a valid PTIN.

The key takeaway for any business is that the ultimate responsibility for a tax return’s accuracy lies with the filer. This law underscores the importance of thoroughly vetting any tax professional before engaging their services and ensuring they sign the return as the paid preparer. This simple act provides a layer of accountability and a clear record of who prepared the documents.

With the law now in effect, the Rhode Island Division of Taxation is expected to begin enforcement. Business owners and residents should remain vigilant, particularly as they begin planning for the next tax filing season, and report any suspected ghost preparer activity to the state tax authorities or the IRS.