How to Choose a Tax Preparer
"The hardest thing in the world to understand is the income tax."
- Albert Einstein
According to the IRS more than 80% of Americans use a tax preparer or tax software to prepare their income tax returns. As tax laws become more complicated, taxpayers need help from professionals to help prepare their returns.
A taxpayer is legally responsible for computing and paying the correct amount of tax even though the return is prepared by someone else. Most return preparers are professional, honest and provide excellent service to their clients. Unfortunately, unscrupulous tax return preparers do exist and can cause huge financial and legal problems for their clients. Examples of improper actions by unscrupulous preparers include the preparation and filing of false income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions.
It is important to choose your preparer wisely. Here is advice from the IRS on how to select a preparer:
- Check the preparer's qualifications. Until 2011, the IRS did not have a requirement for national registration of paid tax return preparers in the United States. Effective January 1, 2011, rules require the registration of almost all paid federal tax return preparers and the assignment to each of a Preparer Tax Identification Number (PTIN). Some paid preparers must pass a national tax law exam and undergo continuing education requirements. Persons who are certified public accountants (CPAs), attorneys or enrolled agents are required to register, but are not required to take the exam and continuing education. Ask your preparer if they have a PIN and ask if the preparer is affiliated with a professional organization and attends continuing education classes.
- Check the preparer's history. Check to see if the preparer has a questionable history with the Better Business Bureau and check for any disciplinary actions and licensure status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Enrollment for enrolled agents.
- How does the preparer charge? Don't use a preparer who charges you a percentage of your refund. If a preparer tells you he or she can get you a bigger refund than other preparers, avoid them. Always make sure that any refund owed to you is sent to you or deposited to your bank account. Never let it be deposited in the preparer's account.
- Do they offer electronic filing? 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. More than 1 billion individual tax returns have been safely and securely processed since the debut of electronic filing in 1990. Make sure your preparer offers IRS e-file.
- Make sure the tax preparer is accessible. Questions an arise at any time. Make sure you will be able to contact the tax preparer after the return has been filed, even after the April due date. Questions can arise several years after you file a return.
- Provide all records and receipts needed to prepare your return. Reputable preparers will want to see your records and receipts. They will ask you many questions to determine your total income and your qualifications for deductions and credits. Do not use a preparer who is willing to electronically file your return before you receive your Form W-2 by using your last pay stub. This is against IRS e-file rules.
- Never sign a blank return.
- Review the entire return before signing it. Before you sign your tax return, review it and ask questions. Make sure you understand everything and are comfortable with the accuracy of the return before you sign it. Remember that you are ultimately responsible and fully liable for all information on the tax return. Just because someone else prepared and signed your tax return does not mean that you are no longer responsible for it. Tax evasion is a crime punishable by up to five years imprisonment and a $250,000 fine.
- Make sure the preparer signs the form and includes his or her preparer tax identification number (PTIN). A paid preparer must sign the return and include his or her PTIN as required by law. The preparer must also give you a copy of the return.
Some preparers will try to sell you additional products, investments or loans. Don't make any sudden decisions. Take the information home and do research on the product before you commit.
You can report abusive tax preparers to the IRS on Form 14157, Complaint: Tax Return Preparer. Download Form 14157 and fill it out or order by mail at 800-TAX FORM (800-829-3676). The form includes the address where it should be mailed.