As a taxpayer myself, I understand that for some, preparing their own tax return is just not an option. Whether due to a complicated return, a lack of understanding of tax law or simply because you don't have the time, paying a third party to prepare your taxes can be a convenient and attractive option.
Unfortunately, proceed with caution and care. Remember, the IRS cannot hold a third party legally responsible for what is on the return. Each one of us must account for the trueness and the overall accuracy of our tax returns.
In other words, we can pass off the burden of preparation, but not the burden of accountability.
Last year, over 100 million returns were filed to the IRS; third party preparers had their hand in well over half of all returns submitted. A 2011 report by the U.S. Government Accountability Office (GAO) said the following:
"Paid preparers are a cornerstone of the U.S. tax system, as they prepare approximately 60 percent of all tax returns filed, and their actions have an enormous impact on the Internal Revenue Service's ability to administer tax laws effectively. In previous work, GAO found that taxpayers were not always served well by their paid preparers, and GAO proposed stricter oversight of preparers."
One study referenced by GAO found that paid preparers do indeed make errors, quite a few of them in fact. For example, in a 2006 report, GAO reviewed tax returns that were prepared at 19 separate commercial tax prep locations. The error rate? One-hundred percent. All 19 returns were found to have mistakes. Refunds incorrectly claimed totaled $2,000 and close to $1,700 in tax was omitted.
With that in mind, if your preparer says any of the following to you, little alarms should be going off in your head. If so, keep your cash to yourself, don't sign a thing and look for another preparer.
"I guarantee I can get you a higher refund than anyone else."
Really? Either I can claim a dependent, credit or exemption, or I can't. To be sure, there are various tax strategies to reduce one's tax liability. But if someone is promising big bucks before they have even looked at our documents, then ask how it is that they can make this promise. Confidence is one thing, fraudulent return preparation is something quite different.
"I don't charge you upfront; I will only take a percentage of your refund."
Tax preparers do not function like trial lawyers. Reputable companies will charge you a flat free, upfront, based on the size, complexity and scope of services needed to file your tax return. Don't give your preparer any incentive to inflate your refund by unscrupulous means. Taking a percentage of your refund is unethical.
"I know you're busy - Just sign this blank return so you don't have to make another trip back here."
Avoid this at all costs. Either your preparer plans to submit a falsified return, or is just plain stupid.
"Your refund will go into the company account, and my fees come out of that."
If a tax preparer insists on having your refund directly deposited into an account in his or her name, or a company account, then respectfully decline.
This is one of the easiest ways a preparer can commit fraud by preparing two set of tax returns. You are given a fake 1040 copy that shows an accurate refund. The actual return filed by the preparer shows a refund claim for thousands more. The IRS sends the money, the preparer splits the difference, and you are left responsible months later when the IRS catches the mistake.
"My credentials? Why do you want to see them?"
Any preparer who bristles at the fact you want to know a little more about them is not worth their weight in pencils. All preparers should be used to this request; in fact, they should volunteer this information without being asked.
Questions to ask your preparer:- Do you have a PTIN (Preparer Tax Identification Number)? Starting in 2012, all paid preparers must register for and maintain a PTIN.
- What is your designation level? A good preparer should be a CPA, lawyer, Enrolled Agent or a Registered Tax Return Preparer. All such designations are recognized by the IRS and indicate advanced schooling or similar qualifications.
- Do you have any consumer information available that I can read? Consumer Affairs, the Better Business Bureau, or another online rating sites can give you invaluable info.
- What does this mean? Probably the most important question. If you do not understand something, ask. If you don't like the answer, leave.
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