Deposit of a federal tax refund check issued to a client.

• Author: Marchbein, Joe
• Position: From The IRS

Sometimes a client may offer to pay an income tax preparation fee by endorsing a refund check to the preparer. The preparer should and must immediately refuse such an offer.

Sec. 6695(f) provides for a $500 penalty for each refund check issued to a taxpayer other than an income tax return preparer, if endorsed or otherwise negotiated by the preparer. However, Regs. Sec. 1.6695-1(f)(2) permits a preparer-bank to process a refund check, provided the institution does not initially endorse the check, unless it has made a refund anticipation loan to the taxpayer.

Besides the Code penalty, there are other consequences to depositing a refund check issued to another. Treasury Circular 230, Regulations...