How to pick a tax preparer
By Sandra Block, USA TODAY
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 preparer.
"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 information.
•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 designations.
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 .
Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: firstname.lastname@example.org. Follow on Twitter: www.twitter.com/sandyblockSource: usatoday30.usatoday.com