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Tax Tips

CAN YOU TRUST YOUR TAX PREPARER

These type of articles get published every year about this time, but if you are looking for a preparer, the advice is sound.

An error can be very minor and it still counts .. I don't know how they determine the rate, but the amount of returns that get a request from the IRS to explain what they missed or omitted is very low (at least based on my experience) .. anyone can make a typo and have that count as an error ??

The article follows .,.,.

On January 31st, Jackson Hewitt, the second largest tax prep firm in the country, sued No. 1 H&R Block over Block's claims it can find errors in two-thirds of tax returns prepared by "other" tax preparers. Jackson Hewitt obviously resents the insinuation. Whatever the outcome of the case, though, it's safe to say the entire industry isn't exactly a bastion of reliability. The Inspector General of the U.S. Treasury found a 61 percent error rate in prepared tax returns.

Just a note on this, I spent 5 years at Block and we found few errors that resulted in the client getting more money back..their double check is not a waste of time, but like all advertising it is over hyped.


But if you're looking to the Internal Revenue Service to provide some supervision and oversight of tax preparers, well, that's not going to happen until at least 2014. Last year, the IRS announced a new program that requires the estimated 1 million U.S. tax preparers to register with the IRS, be tested for competency, and agree to ongoing continuing ed classes. All good news. Yet yesterday the IRS released a report saying it needs a few more years to get its new tax preparer review system up and running.

That leaves the estimated 83 million Americans who hire a tax preparer to vet them on their own. Given the high error rate, that's no small job. And even once the IRS program is in place, it's not going to magically catch every schnook and rube. Keep in mind that any error the IRS finds that raises your tax bill is your legal responsibility. You can negotiate the matter with your tax preparer, but from the IRS's vantage point, you're the one who is on the hook. That's why it's important to do your homework.


A few of these red flags are obvious, but the IRS suggests you be especially wary of tax preparers that do any of the following:

• Guarantee you'll get a refund.
• Get paid by charging you a percentage of the refund.
• Don't ask you for supporting documents, such as your W-2 or 1099s.
• Offer to create documents to support false or exaggerated deductions.
• Ask you to sign a blank form that they will fill in later.
• Refuse to give you a photocopy of your return.
• Refuse to list his or her Social Security number and sign the return, as required by law. (most preparers have a PTIN number as they don't want their SS # on all returns)
• Aren't available year-round. (Some preparers set up shop during the mad tax rush and then sort of disappear.)

Another red flag is if a tax preparer tries to push his or her bona fides by telling you they're already part of the IRS's new oversight system. The fact is, some preparers have already been assigned their official tax-prep ID number, but that's all that has happened. No tests have been given, no education provided. Any preparer using this as a selling point is being disingenuous.


How to Find a Top-Notch Tax Pro

If you've got a somewhat complicated tax story, hiring a solid Certified Public Accountant can be a smart move. But otherwise, using a tax software program can get the job done and removes the risk of an unscrupulous preparer steering you into a too-aggressive tax dodge.

Enrolled Agents are as capable as CPAs at doing taxes and are licensed to do every state, which some CPA's are not.. that is why you might find a CPA who is also an EA.

If you're going to work with a human being, asking friends and colleagues for references is always a good place to start, but a little more legwork wouldn't hurt, either. You can check with your state board of accountancy to see if there are any known problems with a CPA you are considering. And taking a quick spin through the Better Business Bureau website will let you see if there are any complaints registered against him or her. It also can't hurt to run a check on someone you're already working with.

When you're interviewing a tax preparer, ask how many times his or her clients have been audited -- by federal and state -- and how many times the client has wound up owing more upon review. That's a fair question, and no pro should take umbrage. And while you're at it, ask how errors and audits are handled. Are you charged more for the extra time? Will the preparer cover any extra money owed? And again, it's helpful to clarify this even if you're already working with someone.

Finally, cross your fingers that maybe, just maybe, Washington will get serious about overhauling the individual tax code. President Obama gave it a passing mention in his State of the Union address. The reality is that the incredible complexity of the code is a Petri dish for errors and outright fraud. And it all comes at a huge cost: We spend $163 billion a year on tax prep.
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