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By Diana Palmieri
Do you really know who your tax preparer is? What about his or her credentials? Lots of folks blindly hand off very personal information to a tax professional every year and probably don’t think twice about who they really are and where they’ve been. Below is a chart from the www.irs.gov Web site that I found to be very informative. It outlines different levels of tax preparers and requirements.
The chart below provides an overview of the various categories of individuals who may prepare federal tax returns for compensation.Overview of Tax Return Preparer Requirements
| Category | PTIN | Tax Compliance Check | Background Check | IRS Test | Continuing Education | Practice Rights |
| Enrolled Agents* | Yes | Yes | Proposals Pending | Yes (Special Enrollment Exam) | 72 hours every 3 years | Unlimited |
| Registered Tax Return Preparers** | Yes | Yes | Proposals Pending | Yes (RTRP Test) | 15 hours per Year | Limited |
| CPAs*** | Yes | Yes | Proposals Pending | No | Varies | Unlimited |
| Attorneys*** | Yes | Yes | Proposals Pending | No | Varies | Unlimited |
| Supervised Preparers† | Yes | Yes | Proposals Pending | No | No | Limited |
| Non-1040 Preparers‡ | Yes | Yes | Proposals Pending | No | No | Limited |
| *Enrolled Agents have passed a three-part, comprehensive IRS exam covering individual and business returns. They must adhere to ethical standards and complete 72 hours of continuing education courses every three years. EAs have nlimited practice rights before the IRS, which means they can represent clients for any tax matter. **RTRPs have passed an IRS test establishing minimal competency. The test covers only individual income tax returns (Form 1040). They must adhere to ethical standards. They must also complete 15 hours of continuing education each year. RTRPs have limited practice rights before the IRS, which means they can represent clients in only certain circumstances. ***CPAs and Attorneys have unlimited practice rights before the IRS. † To determine if you are a supervised preparer, view the fact sheet. ‡ If you only prepare Forms 1040-PR and 1040-SS, you are considered a non-1040 preparer. |
- No Preparer Tax Identification Number? Referred to as a PTIN, recent IRS regulations require ALL paid preparers, CPAs, and attorneys to apply for a PTIN before preparing any tax returns.
- Promise of a BIG refund. Any tax preparer who uses the “G” word (guarantee) to tell you they are going to get you the biggest refund ever BEFORE they even look at old returns and other financial documents warrants you to run, not walk, to the nearest exit. This “guarantee” could lead to the fixing and juggling around of your numbers, which could ultimately put you on the IRS audit list in the future.
- BIG refund is a percentage of the preparer’s fee. Tax firms that have a good reputation will almost always charge a flat fee for their services. Those fees will vary, depending on the types of forms they need to file. Again, a preparer using your refund as a percentage of what he gets paid is trouble. As stated above, juggling and fixing numbers to create the higher refund will only lead to a potential audit for you.
- Questionable history. There are several sources you can check for disciplinary action and license status through either your state bar association for attorneys, the IRS Office of Professional Responsibility for enrolled agents, or your state board of accountancy for CPA. I would even suggest contacting the Better Business Bureau.
- "Sign This Form and I Will Fill It in for You Later.” DO NOT ever sign a blank form with the promise that the information will be “filled in later.” You are giving this preparer freedom to do anything with your signature.
- Not Asked To Review Your Completed Return. If your preparer files your return inaccurately, whether or not it is your fault or theirs, you are still liable. We are in the modern days of e-filing and are simply asked to sign a slip of paper to authorize the filing, not asked to sign the actual return. It is imperative you review and have a copy of your entire return before signing the e-file authorization.
You have many choices with tax preparers. It is always best to get a great tax professional from a referral from someone you know and trust. If you find that you might have someone who is unsavory and may have done you wrong, do not hesitate to contact the IRS or other sources I listed in this article.
Diana Palmieri is dually registered with Vanderbilt Securities LLC and H Beck Inc., which are unaffiliated. Securities offered through Vanderbilt Securities LLC, member SIPC/FINRA/MSRB.
