How do you know you’re working with a legitimate tax preparer? The answer isn’t as cut-and-dry as it should be. It’s essential to determine, though, because working with an unscrupulous or incompetent tax preparer could cost you more than tax dollars. You could be hit with huge penalties and interest or even jail time.
Tax preparers are federally unregulated currently, but bipartisan lawmakers want to bring back federal power to regulate paid tax return preparers and mandate minimum competency standards with registration, testing, and continued education. Believe it or not, most reputable tax professionals support these efforts for regulation. Those already adhering to top professional and ethical standards understand the importance of rooting out tax preparers who do more harm than good.
In the meantime, what’s the best way to choose a tax preparer? First, understand the difference between a Certified Public Accountant (CPA) and other tax preparers. Business owners and high-net-worth individuals often choose to work with CPAs because they’re licensed by their state or territory’s board of accountancy and hold a degree in accounting. They can also represent their clients to the IRS on matters including audits, payments/collection issues, and appeals (so if something goes wrong, you’re not on your own).
In contrast, unlicensed tax preparers aren’t regulated like CPAs, licensed tax attorneys, or IRS-sanctioned enrolled agents are. They have limited representation rights and currently have no federal standards to meet when it comes to knowing and adhering to tax laws.
To find the best tax preparer for you, consider looking for:
- An active preparer tax identification number (PTIN). Paid preparers must sign returns and include their PTIN on the return they file. To cross-check a PTIN, search the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. If the tax preparer doesn’t appear on the list, ask them about it (it’s not mandatory but being listed proves that they’re dedicated to continuing education and professional standards).
- Clues that the tax preparer is who they say they are. If they claim to be a CPA, for instance, verify their license online. For Texas CPAs, you can search the Texas State Board of Public Accountancy’s database. The search will also turn up any disciplinary actions against the CPA.
- Warning signs. For example, being asked to sign a blank return. You need to ensure you agree with what’s being claimed (the IRS will scrutinize your innocence once you sign your return), that your information (not your tax preparer’s) is provided for refunds, and that the preparer has signed and included their PTIN. For more warning signs directly from the IRS, search “IRS choosing a tax professional”
When choosing a tax preparer, don’t be distracted by slick marketing, confusing titles, or well-known names. Instead, do your research and be sure that they are as wise and as ethical as they say they are. Feel free to contact us with questions.