Before you take your tax return in to the nearest tax preparation service around the block, consider this advice from the IRS:
“Taxpayers who decide they need assistance when preparing a tax return should choose a tax preparer with care and caution. Even if a return was prepared by an outside individual or firm, taxpayers should remember that they are legally responsible for what they file with the Internal Revenue Service.” IRS FS-2010-3
With this in mind, here is a list of considerations and questions you should ask before hiring someone to file your income tax return.
What credentials does your tax preparer have? (CPA, Enrolled Agent, Tax Attorney)
The tax preparation business is largely unregulated. ANYONE, regardless of experience or expertise, who charges a fee may file a return on behalf of a taxpayer. Make sure to ask your tax preparer what credentials they have. Don’t assume that just because someone is employed with one of the major tax preparation service providers, they are experts. In fact, H&R Block’s employment site claims, “Each year H&R Block employs thousands of seasonal and part-time associates.”
The Treasury Inspector General for Tax Administration (TIGTA) discovered that unenrolled agents are wrong more often than they are right. Some details of the test include:
- TIGTA auditors posed as taxpayers earlier this year at 12 offices of commercial tax preparation chains and 16 small, independently owned offices.
- Unenrolled, unlicensed preparers had only a 35% accuracy rate in preparing income tax returns.
- More than one-third of the erroneous returns contained misstatements or omissions that TIGTA considered willful or reckless.
- Of the 28 tax returns prepared, only 11 were prepared correctly, TIGTA said. If the 17 erroneous returns had been filed with the IRS, they would have resulted in $12,828 in underpaid taxes.
- TIGTA determined that six returns contained willful or reckless omissions or misstatements.
- In a similar test conducted in 2004, TIGTA checked 35 returns by unenrolled tax preparers and the accuracy rate was ZERO!
- Fees charged by the preparers varied widely—even among similar returns—but averaged $234 per tax return at commercial chains and $132 at independent offices.”
(source: http://www.journalofaccountancy.com/Issues/2008/Dec/UnenrolledPreparersOftenWrong.htm)
Remember, when the IRS detects a fraudulent return, the taxpayer — not the return preparer — must pay the additional taxes and interest and may be subject to penalties.
CPA’s (Certified Public Accountants), tax attorneys, and enrolled agents inspire confidence because they have passed a series of state examinations focusing on tax law and are regulated by associations such as the A.I.C.P.A. Also, don’t assume that licensed CPAs charge more than non-regulated preparers. In the TIGTA report, the average cost of a tax return by commercial chains was $234.00.
If you decide to not hire a CPA, your return should at least be reviewed and signed by an enrolled agent or tax attorney. Only CPAs, enrolled agents and tax attorneys can represent tax payers before the IRS in all matters including audits, collection and appeals. By electing to have your taxes prepared by one of these professionals, you are hiring someone who has earned valuable credentials through ongoing training and passing complex exams.
Will the person handling your return also be the one signing it?
Ideally you want the person/firm preparing your return to have the above credentials. At the very least, you should make sure the person with credentials signs your return and will carefully reviews and inspect it before filing to the IRS.
Did your Tax Preparer earn continuing education credits in the past year?
There are multiple changes to the tax code each year and unless your preparer is keeping themselves current through continuing education, it is difficult to be aware of all the subtle changes in the law. Don’t be afraid to ask open ended and pointed questions to your tax preparer. Questions like, “How do you stay on top of all the changes in the tax code?” should be answered with confidence. Don’t accept answers such as, “All the changes are handled through our software”. The person handling your income tax return should be up to date with the tax laws and be able to ask the right questions to properly utilize the software.
What software does your tax preparer use?
This may seem a bit trivial, but you would be surprised to find out there are still some tax preparers who do not use any software at all. In addition, there are some who are use basic consumer level programs. There is a huge difference between an off the shelf tax preparation program you can buy in a retail store versus professional tax preparation software. Also, be aware if your preparer does not personally offer electronic filing (E-File). The IRS gives approval to who can E-File and if your preparer is not authorized, consider it a warning.
Does your tax preparer have experience within your business industry or within your individual profession?
Different businesses and different individuals may have unique issues relating to their return. Your preparer should be knowledgeable and familiar with some of the complexities unique to your own situation.
Ask your tax preparer if they will personally represent you if you are audited by the IRS.
The answer to this question should always be yes (assuming your preparer is a CPA, tax attorney or enrolled agent). If not, ask them why. You’ll probably end up wanting to hire someone else.
Also, be aware that services that claim they will explain your tax return is NOT the same as representing you.
RED FLAGS to look out for:
- Does the tax preparation service aggressively push high interest refund anticipation loans?
- Income Tax preparers who promise you a refund before reviewing your situation should not be trusted.
- Avoid tax preparers who base their fees on the amount of your return.
- Avoid tax preparers who claim they can get you a larger refund than other preparers.
About the author: Jose Alvarez is the Managing Director of Alvarez Company PA CPA Firm, a full service tax and accounting firm that has been serving the greater Tampa Bay area for over 35 years. If you would like help with your personal or business tax return and/or accounting, you can call (813) 938-2400.
If you would like more information on this subject, you can view “How to Choose a Tax Return Preparer and Avoid Preparer Fraud” (Fact Sheet FS-2010-3) at the official IRS website.
Related Resources: Tax Scams and Consumer Alerts from the IRS
