How to choose a tax preparer
The big news last week was that the Internal Revenue Service was going to start regulating currently “unregulated” tax preparers. “Unregulated” tax preparers are defined as all tax preparers that are not enrolled agents (EAs), certified public accountants (CPAs), or attorneys. Those three classes of preparers are allowed to call themselves “practitioners,” as opposed to preparers. For that privilege, they have always been highly regulated and are held to a high standard of conduct.
According to the IRS findings, there are currently 42,896 EAs, 646,520 CPAs, and 1,180,386 attorneys who actually prepare and sign tax returns. The IRS has a good handle on who these people are and the type of work they do. But according to the IRS, there are between 900,000 and 1,200,000 “unregulated” tax preparers preparing and signing tax returns. Conversely, they don’t really have a good picture of who these people are and if they are competent enough to actually be preparing tax returns.
We are talking about some large numbers of tax returns here. About 61,800,000 tax returns were prepared by paid preparers last year. If the EAs, CPAs, and attorneys prepared half of those returns, that leaves 30,900,000 tax returns that the IRS has less control over.
All of that will begin to change on January 1, 2011, when these new regulations take effect in earnest.
With that 2011 date in mind, remember that the same old rules apply this year. Some preparers are regulated and some preparers are not regulated; 61,800,000 taxpayers are going to choose a tax preparer in the near future to prepare their return. What are the factors they should use to make that choice? My personal list goes like this:
1. Will the preparer sign the return? By law, anyone who is paid to prepare a return has to sign that return. If the preparer hedges on that point, there is something drastically wrong. As the saying goes, “Run, don’t walk; get away as fast as possible.” If the preparer won’t sign the return, that doesn’t absolve the taxpayers from what is on the return.
2. Is the preparer available year around? The tax business has grown into a year-round business, because our tax system is so complicated. Congress is making laws all year long that affect not only the future years, but also the current year. The IRS is better at matching up the information sent to them on paper forms such as W-2s and 1099s with the tax return itself. If the information doesn’t match, they send out a demanding letter. The state of Michigan sends out a few million letters yearly proposing all types of assessments. All of those letters require a response. If you receive a letter from any taxing authority, you need your tax preparer to help formulate that response. Ignoring the letter does not make the problem go away. Not being able to get in touch with your preparer is not a viable excuse. Make sure the preparer is available all year around.
3. Does the preparer have any professional affiliations and/or credentials? Is the preparer an EA, CPA or attorney? Does the preparer belong to organizations such as National Association of Tax Professionals, Michigan Society of Certified Public Accountants, or the Michigan Bar Association? The affiliation itself doesn’t prove the preparer is competent, but it does prove he/she is willing to spend some time and money to belong to an organization that most likely does have a continuing education requirement and has an existing standard of ethical conduct.
4. Who is actually preparing the return? Do you meet with a senior tax preparer for a short visit to go over your information, but when you leave, the return information is given to an intern to prepare? Worse yet, is your return information sent to an overseas affiliate in India or Ireland where the return is completed overnight and sent back in the morning? We have strict privacy and confidentiality rules that we abide by here in the USA, but I’m not so sure these other countries have the same high standards that we live by. Find out who is preparing the return.
5. Does the preparer promise larger tax refunds than other preparers? If so, they actually could be more brilliant than all of those other preparers or they could bend the rules a little more than is allowable. Be careful of preparers making that claim.
It’s not illegal to interview a tax preparer before you ask him/her to prepare your return. That might help you make the best decision in light of the factors I discussed above. This is Jerry Coon signing off.
Jerry Coon is an Enrolled Agent. He owns
Action Tax Service on Northland Drive
in Rockford.Contact Jerry at his