How Prepared is Your Preparer?

If you are hiring a paid tax preparer this year, how do you know the person is qualified?

Many professions are full of licensed practitioners. For example, you can’t hire a lawyer who hasn’t passed a bar exam and is licensed to practice in your area. Licenses are certainly required for medical professionals. Electricians and most other home services providers must be licensed.

But when it comes to tax preparers, licenses are generally not required. Almost anyone can advertise tax preparation services and file a tax return on your behalf or fill it out for you to submit. Anyone can purchase an off-the-shelf tax program, hang a shingle and become a paid preparer. Unlike other industries, there is no national licensing requirement to become a paid preparer. So how do you know if they are qualified?

The Internal Revenue Service (IRS), does however, require all paid tax preparers to have a Preparer Tax Identification Number (PTIN), so make sure your tax preparer has one and enters it on your return. 

Since all tax preparation credentials are earned voluntarily, it is important to look for a preparer who has obtained voluntary credentials validating his or her experience. Having credentials typically requires passing exams, abiding to a code of ethics and taking a minimum amount of continuing professional education (CPE) every year. Read a Guide to Tax and Accounting Credentials

Things to Know

1. The Internal Revenue Service (IRS) requires all paid tax preparers to have a Preparer Tax Identification Number (PTIN), so make sure your tax preparer has one enters it on your return. Paid preparers must sign returns and include their PTIN as required by law. The preparer must also give you a copy of the return.

2. Beware of and avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can.

3. Never sign a blank return. Don’t use a tax preparer who asks you to sign an incomplete or blank tax form.

4. Refunds should always come to you, not the tax preparer. Always make sure any refund due is sent to you or deposited into your bank account. Taxpayers should not deposit their refund into a preparer’s bank account.

5. Do not rely on a preparer who is willing to e-file your return using your last pay stub instead of your Form W-2. This is against IRS e-file rules.

6. Review your return before signing. Before you sign your tax return, review it and ask questions if something is not clear. Make sure you’re comfortable with the accuracy of the return before you sign it.

And remember the old adage, “If it sounds too good to be true, it probably is!” If you suspect tax fraud, visit the IRS web page that deals with this issue. It’s also a good idea to check the preparer’s history. You can check with the Better Business Bureau to find out if a preparer has a questionable history. Check for disciplinary actions and the license status for credentialed preparers. For CPAs, check with the State Board of Accountancy. For attorneys, check with the State Bar Association. For Enrolled Agents, go to www.irs.gov and search for “verify enrolled agent status.”