If you ask your barber for a trim and end up with a
buzz cut, your hair will grow back in a few months. But
if an inept tax preparer makes a hash out of your tax
return, the repercussions could haunt you for years.
When you file a tax return with the IRS, you're
legally responsible for the information on the return.
Underpay your taxes, and you'll be responsible for the
amount owed, plus interest and possibly penalties. The
IRS won't let you off the hook because someone else
prepared your return.
The IRS is, however, taking steps to protect
consumers from incompetent or fraudulent preparers.
Commissioner Doug Shulman announced last week that the
IRS plans to require paid tax preparers to register with
the government, pass a basic competency test and take
continuing education courses.
That's a major change: While a few states regulate
tax preparers, in most parts of the country, anyone can
hang up a sign and call himself or herself a tax
"There are a lot of people that think they can
prepare tax returns and aren't competent to do it,"
says Tom Ochsenschlager, vice president of taxation for
the American Institute of Certified Public Accountants.
The rules will take several years to implement, so
for the upcoming tax season, you're still on your own.
But you can take steps to protect yourself.
If you're planning to pay someone to prepare your
taxes this year, here's what you should watch out for:
*Preparers who claim they can get you a larger refund
than other preparers. A preparer can't estimate your
refund without first reviewing your financial
*Preparers who base their fee on a percentage of your
refund. These individuals have a greater incentive to
create imaginary dependents, claim bogus deductions and
take other steps to fraudulently inflate your refund.
*Preparers who disappear after April 15. The IRS may
have questions about your return months, or even years,
after it was filed. Find out how long a prospective
preparer has been in business, and whether the practice
remains open after April 15.
*Preparers who pressure you to take out a
refund-anticipation loan. These loans are profitable for
lenders and preparers, but they're a lousy deal for
taxpayers. Interest rates for the loans range from 36%
to more than 500%, according to a report by the
Government Accountability Office.
Consumer groups have long argued that the products
attract shady tax preparers who use misleading sales
tactics to market the loans.
If your return is filed electronically, you can get
your refund in about two weeks, making a loan
unnecessary unless you're flat-out broke.
*Preparers who refuse to sign your return. This is a
huge red flag, because it suggests the preparer doesn't
want to be held accountable for the information in your
return. Reputable preparers should sign your return and
give you a copy.
Even after the new IRS regulations take effect, it
may be a good idea to ask a potential preparer if she'll
sign your return or hand it off to a supervisor.
In a report to Congress last week, IRS taxpayer
advocate Nina Olson raised concerns that the proposed
rules would allow tax preparation firms to employ one
"signing" partner who meets the new
requirements, while assigning most of the work to "unsigning"
preparers who aren't registered with the IRS.
When searching for a tax preparer, you should also
ask about the individual's credentials. Only certified
public accountants, enrolled agents and attorneys are
authorized to represent taxpayers in all matters,
including audits, collections and appeals.
In addition, CPAs, enrolled agents and attorneys are
already subject to education and licensing requirements
and are bound by ethical standards. For this reason, the
new rules will not extend to individuals who hold these
You should also ask preparers whether they belong to
professional organizations that provide continuing
education and require members to adhere to a code of
ethics. Between 85% and 90% of members of the National
Association of Tax Professionals have accounting or
tax-related undergraduate or graduate degrees, says NATP
Chief Executive Officer Kathy Stanek.
The NATP offers a free brochure, "Finding the
Right Tax Preparer," available at www.natptax.com.
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