Know Your Tax Preparer


The holidays are behind us, and you know what that means. It’s tax season. Do you know who your tax preparer will be? You may want to lock yours in early because there could be a shortage of qualified tax preparers this year.

When you hire someone to do your taxes, odds are that person will either be a Certified Public Accountant or an Enrolled Agent. Both are qualified to prepare and file taxes for other people, although the CPA requirements are much stricter than those of an Enrolled Agent. Some attorneys also specialize in tax law.

The problem is there’s a shortage of CPAs and Enrolled agents right now. Apparently, not enough young people are choosing to become CPAs. One major firm is even hiring high school interns at $22 an hour to entice them into becoming CPAs.

This may become an inconvenience to a lot of people this tax season and even dangerous for some. If folks become desperate to find tax professionals to file their returns, it opens the door for scam artists who may falsify their credentials.

The IRS suggests a number of ways to protect yourself from these fraudsters who come out of the woodwork every tax season to perpetrate refund fraud, identity theft, and other scams.

Look for a preparer who is available year-round. If you’re audited, you certainly want your tax preparer there to represent you. Obviously, you want to avoid “fly by night” operations.

When interviewing a tax preparer, ask for their IRS Preparer Tax Identification Number or PTIN. Paid tax return preparers are required to register with the IRS, obtain a PTIN, and enter it on any returns they prepare.

You can check whether a tax preparer has done this in the IRS’s Directory of Federal Tax Return Preparers. This tool can help you locate a preparer in your area with the qualifications you’re seeking.

You should also ask if the preparer has a professional credential, such as a CPA or Enrolled Agent. Ask about continuing education classes they’ve taken. Tax laws are complex and change frequently. Preparers have to stay up-to-date on tax topics.

You can also check on the history of a tax preparer. For CPAs, check with the State Board of Accountancy. For Enrolled Agents, the IRS has this tool: Verify the Status of an Enrolled Agent. For attorneys, check with their State Bar Association.

You also want to ask about fees. Avoid preparers who base their fees on a percentage of their client’s refund or if they brag that their refunds are bigger than the competition. Do not give any personal information or documents to a preparer until you’ve checked them out and are satisfied that they’re legitimate. A fraudster only needs your Social Security number to file a fraudulent return and steal your refund.

You also want to make sure the preparer offers IRS e-file and then ask to have your return filed that way. If the preparer can’t or won’t file electronically– that’s a warning sign. Paid preparers who do taxes for more than ten clients generally must file electronically. It’s also the safest and most accurate way to file.

Next, beware of any tax preparer who doesn’t ask you for records and receipts. Legitimate preparers need those documents and will always ask you for them, so be prepared. Here’s another warning sign: A preparer says they can e-file your return based simply on a pay stub. If you encounter that, head for the door. Tax preparers are required to use a W-2, and you’ll need to provide it, unless you’re a contract worker. In that case, you’ll have to provide a 1099.

You also need to understand the rules of representation. If you’re audited, CPAs, Enrolled agents, and attorneys can all represent you before the IRS in any situation. Non-credentialed preparers, including your cousin Bill, who’s a whiz with numbers, cannot represent you if you’re audited.

This one should go without saying: never sign a blank or incomplete tax return. Review the entire return and make sure it’s complete before signing. Ask questions if something’s not clear or looks inaccurate.

Any refund should go directly to you, not to your preparer’s bank account. To make sure, check the routing and bank account number on the completed return.

Finally, one way you can avoid any potential problem with your tax preparer is to look for a CPA, Enrolled Agent, or tax attorney with the Certified Kingdom Advisor designation.

About the author: Jim Henry is the Senior Radio Producer and Writer for Faith & Finance, a network of radio programs created by FaithFi.