Richmond Times Dispatch Article
From staff and wire reports March 4, 2017
Tax preparers do a big chunk of America’s tax returns — more than 80 million a year, according to the IRS — but if you’re nervous about handing confidential information to someone in a largely unregulated field, you’re not alone.
First, decide if you really need a tax preparer.
Everyone’s tax situation is different, but many millions of them are simple enough — some W-2s from work, mortgage interest or a few other obvious deductions — to handle in-house. If that’s the case, it might be cheaper and faster to buy computer software and do your taxes yourself.
Millions of taxpayers also qualify to file their federal tax returns using IRS Free File at no cost, said Charles “Chuck” McCabe, CEO of Henrico County-based Peoples Income Tax Inc., which operates income-tax offices across central Virginia, and its The Income Tax School Inc. subsidiary.
But McCabe said to be sure to access Free File from the www.IRS.gov website as there are many imposters.
“Obviously the more you have going on, the more I would say go see a preparer,” said Trish Evenstad, president of the Wisconsin Society of Enrolled Agents.
If you do need a preparer, be choosy.
“I wouldn’t just simply go through the phone book and pick someone randomly,” said Melissa Labant, director of tax policy and advocacy at the American Institute of CPAs.
Asking friends, family or colleagues for recommendations can quickly reveal a preparer who’s caused headaches, she said.
Tax attorneys and enrolled agents specialize in or have passed exams on tax rules, and many certified public accountants also specialize in tax preparation.
At a minimum, McCabe said, a legitimate preparer should have a Preparer Tax Identification Number, or PTIN, from the IRS and are participating in the IRS voluntary Annual Filing Season Preparer program.
Preparers who are not CPAs, enrolled agents or attorneys and are not participating in the preparer program do not have authority to speak to the IRS on behalf of their clients, McCabe said. To participate in that program, the preparer must complete annual education and pass a test. “A PTIN alone is not sufficient,” he said.
Never assume that because someone works at a big tax-prep company he or she must be an enrolled agent or a certified public accountant, Evenstad warns.
And don’t assume a PTIN is valid, either — a 2014 Government Accountability Office study caught some unscrupulous preparers using fake PTINs or ones that didn’t belong to them.
You can verify PTINs and professional credentials on the IRS website, and you can check accounting and law licenses on state-level CPA and bar association websites. The National Association of Enrolled Agents also maintains a directory.
A tax preparer’s job is to become thoroughly familiar with his or her client’s personal financial situation and help provide the information necessary to minimize taxes.
“Your tax advisor should be working to help you avoid problems with the IRS, but should not behave like an IRS auditor,” McCabe said. “By the end of your interview, you should have no question that all your personal concerns were addressed and your best interests were served. Basically, the best tax preparers are not ‘tax technicians.’ They are knowledgeable individuals who have empathy and genuine concern for the best interests of each one of their clients.”
Furthermore, he said, consumers need to make sure the tax preparer will be there when the person gets a letter from the IRS.
“A reputable tax preparer will be available year-round, year-after-year to provide assistance with any tax problems or questions,” McCabe said.
The cost of preparing any tax return can vary dramatically among different tax practitioners.
IRS law prohibits tax preparers from basing fees on the amount of tax refund obtained by the client. Many tax practitioners charge by the hour, others operate from a standard schedule of charges and some simply charge whatever the market will bear.
“Higher levels of tax expertise typically command higher fees,” McCabe said. “Ideally, you will find a tax professional with the level of expertise you need for a price you can afford. Perhaps the fairest basis for setting fees is the complexity of the income tax return, determined by the schedules and statements required. This method enables a price to be quoted in advance that will apply regardless of how long it may take for the tax preparer to complete the return.”
But be wary of tax practitioners who avoid disclosing the basis for their fees in advance. “You should also ask if you will be charged extra for tax information should questions arise later, or for assistance in the event of an audit,” he said.
Taxpayers should ask questions to a tax preparer.
Ask about what happens if a tax preparer makes a mistake that costs penalties or interest or if the taxpayer is audited by the IRS. What happens if the consumer isn’t satisfied with the way the return was prepared?
“Before you contract with a tax preparer, you should find out the answers to each of these questions,” McCabe said.
The IRS requires paid tax preparers put their name and PTIN on returns they prepare. Not doing so, or asking you to sign a blank return first, suggests a preparer is up to no good, Evenstad said.
Directing your refund to a bank account that’s not yours is another red flag. And make sure your return doesn’t say “self-prepared.”
Good preparers also will ask for last year’s return, Labant says. “If they don’t, then you’ll know right away this person is not exercising due diligence and they could easily be missing several key items that need to be reported on your tax return.”
The preparer should provide a secure portal for sending information, too.
“If someone called me and said, ‘Just email me a copy of your driver’s license,’ that would make me a little nervous about how well they’re protecting taxpayer identification information,” Labant says.
Business Editor Gregory J. Gilligan and The Associated Press contributed to this report.