Choosing a Tax Return Preparer
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.
Most return preparers are professional, honest and provide excellent service to their clients, but some engage in fraud and other illegal activities. Return preparer fraud involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients.
Preparers may, for example, manipulate income figures to fraudulently obtain tax credits, such as the Earned Income Tax Credit. In some situations, the client, or taxpayer, may not even know of the false expenses, deductions, exemptions and/or credits shown on his or her tax return.
However, 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.
Understanding Tax Return Preparer Credentials
Tax professionals have differing levels of skills, education and expertise. There also are several different types of credentials. For 2013, any tax professional with an IRS Preparer Tax Identification Number is authorized to prepare federal tax returns.
An important difference in the types of practitioners is “representation rights”. Here is guidance on each credential:
UNLIMITED REPRESENTATION RIGHTS: Enrolled agents, certified public accountants, and attorneys have unlimited representation rights before the IRS and may represent their clients on any matters including audits, payment/collection issues, and appeals.
Enrolled Agents – People with this credential are licensed by the IRS and specifically trained in federal tax planning, preparation and representation. Enrolled agents hold the most expansive license IRS grants and must pass a suitability check, as well as a three-part Special Enrollment Examination, a comprehensive exam that covers individual tax, business tax and representation issues. They complete 72 hours of continuing education every 3 years. For more information on enrolled agents, see Publication 4693-A, A Guide to the Enrolled Agent Program.
Certified Public Accountants – People with this credential are licensed by state boards of accountancy, the District of Columbia , and U.S. territories, and have passed the Uniform CPA Examination. They also must meet education, experience, and good character requirements established by their boards of accountancy. In addition, CPAs must comply with ethical requirements as well as complete specified levels of continuing education in order to maintain an active CPA license. CPAs can offer a range of services; some CPAs specialize in tax preparation and planning.
Attorneys – People with this credential are licensed by state courts or their designees, such as the state bar. Generally, requirements include completion of a degree in law, passage of an ethics and bar exam and on-going continuing education. Attorneys can offer a range of services; some attorneys specialize in tax preparation and planning.
LIMITED REPRESENTATION RIGHTS: Preparers without any of the above credentials (also known as “unenrolled preparers”) have limited practice rights and may only represent clients whose returns they prepared and signed and only at the initial audit level.
NOTE: Registered Tax Return Preparers – Certain preparers became RTRPs under an IRS program that IRS is no longer able to enforce due to a District Court injunction. RTRPs passed an IRS competency test on Form 1040 tax preparation.
REMINDER: Everyone described above must have an IRS issued preparer tax identification number (PTIN) in order to legally prepare your tax return for compensation. Make certain your preparer has one and enters it on your return filed with the IRS. They are not required to enter it on the copy they provide you.
Helpful Hints When Choosing a Return Preparer
Taxpayers are responsible for the accuracy of all entries made on their tax returns, which include related schedules, forms and supporting documentation. This remains true whether the return is prepared by the taxpayer or by a return preparer.
Tax Evasion is a crime, a felony, punishable up to 5 years imprisonment and a $250,000 fine. When in doubt, check it out! Taxpayers hearing claims from preparers offering larger refunds than other preparers are encouraged to check it out with a trusted tax professional or the IRS before getting involved.
1. Check on the preparer’s history. Check with the Better Business Bureau to see if the preparer has a questionable history. Also check for any disciplinary actions and for the status of their licenses.
2. Ask about service fees. Avoid preparers who base their fee on a percentage of your refund or those who claim they can obtain larger refunds than other preparers can. Also, always make sure any refund due is sent to you or deposited into an account in your name. Taxpayers should not deposit their refund into a preparer’s bank account.
3. Ask to e-file your return. Make sure your preparer offers IRS e-file. Any paid preparer who prepares and files more than 10 returns for clients must file the returns electronically, unless the client opts to file a paper return.
4. Provide records and receipts. Reputable preparers will request to see your records and receipts. They will ask you questions to determine your total income and your qualifications for deductions, credits and other items. Do not use a preparer who is willing to e-file your return by using your last pay stub before you receive your Form W-2. This is against IRS e-file rules.
5. Never sign a blank return. Avoid tax preparers that ask you to sign a blank tax form.
6. Review the entire return before signing. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it.
7. Make sure the preparer signs and includes their PTIN. A paid preparer must sign the return and include their PTIN as required by law. The preparer must also give you a copy of the return.
8. Report abusive tax preparers to the IRS. You can report abusive tax preparers and suspected tax fraud to the IRS on Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or altered a return without your consent, you should also file Form 14157-A, Return Preparer Fraud or Misconduct Affidavit. Download the forms on the IRS.gov website or order them by mail at 800-TAX-FORM (800-829-3676).
- Youtube – Tax Tips – Choosing a Tax Preparer
- Pub 4445-G How to Select a Tax Preparer: Tips from the IRS
- Tax Tip 2008-07
- Additional Information on Abusive Return Preparers
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