Each year, millions of Americans filed their returns through a paid preparer. In 2017 (according to efile.com), professional tax preparers filed about 71 million tax returns, with an additional 52 million filing on their own using computer- or web-based tax programs, or just filling out the paper forms.
With this tax season being the first to reflect a full year under the recent Tax Cuts and Jobs Act, and the fact that filing fraud and identity theft are persistent problems that grow every year, it’s important to find the right person to file your taxes.
Whether getting your taxes done is something you want to do quickly or if you plan to wait until April 15, doing your homework now can save you time and headaches later.
It’s not hard to find someone to do your taxes. While your brother-in-law might be a good numbers guy, unless he’s got training and is up-to-date on current tax law, he might not know what he’s doing when it comes to your taxes.
Keep in mind that when you sign off on your preparer’s work, you are taking responsibility for the work and will have to face any consequences if there are problems later. To be a paid tax preparer, all the law requires is that you have a Preparer Tax Identification Number (PTIN). But finding qualified preparers takes a little homework.
According to the IRS, preparers may have one of two levels of representation rights: unlimited and limited. Those with unlimited representation rights may represent their clients to the IRS on “any matters including audits, payment/collection issues, and appeals.” In contrast, those with limited representation rights may only represent you under certain conditions, and before certain agencies.
Those with unlimited representation rights include the following:
- Attorneys. Generally, they have earned a degree in law and passed a bar exam, and must be in good standing. In addition, they must and have obtained continuing education and adhere to “professional character standards.”
- Certified public accountants. CPAs must have passed the Uniform CPA Examination, and be in good standing with their state Board of Accountancy.
- Enrolled agents. These preparers must pass a three-part examination, which requires they demonstrate their proficiency and knowledge, and they must complete 72 hours of continuing education every three years.
Those with limited or no representation rights include Annual Filing Season participants and PTIN holders. Annual Filing Season participants should be able to produce an Annual Filing Season Record of Completion, signifying that they have completed a certain number of continuing education hours. PTIN holders are merely people who hold an active Preparer Identification Number, but may not hold any relevant professional credentials. They cannot represent you before the IRS, unless they completed your return before the end of 2015.
To avoid fraud, here are a few red flags to watch out for once you’ve contacted a tax preparer (from the Washington Post):
- No PTIN. If the preparer doesn’t have a Preparer Tax Identification Number, he or she is not registered with the IRS (a requirement for all preparers). The PTIN should be reported on your tax return.
- “Don’t worry about the blanks.” If there are blanks on your return, or it’s only partially completed, don’t sign it. That opens the door for fraud, for which you will be accountable.
- No paperwork. If your preparer doesn’t ask you for your W-2 forms, 1099s or other proof of income, he or she has no way of knowing how much income you have, and can’t legally complete your return.
- Your preparation fee is based on a percentage of your refund. This incentivizes the unscrupulous preparer to inflate your refund, a practice which could land you both in jail and/or cost you in fines and penalties.
- A preparer asks you to pay him or her any taxes or penalties owed. Any payments will be made from you directly to the IRS, not to the preparer.
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