The IRS’s Office of Professional Responsibility has long been trying to be a force in regulating and imposing some form of quality control over return preparers. Unfortunately, those efforts have mostly been unsuccessful. The most visible failure was when the District of Columbia Federal Appeals Court agreed that the IRS’s attempted use of Circular 230 to regulate return preparers was not a valid use of their authority.
Certainly, the government will be seeking other ways to deal with return preparers they think are not qualified, especially since they list fraudulent return preparation on their list of the “Dirty Dozen Tax Scams for 2015.” In the interim, the IRS is using good old fashioned public relations to help achieve their goals. Part of that is their recent publication of an informational webpage on choosing a tax return preparer. The IRS has even created an informational video, although it is highly unlikely to go viral without any cats in it.
Here are the tips the IRS provides (which can be found at the IRS website by clicking here):
- Check to be sure the preparer has an IRS Preparer Tax Identification Number (PTIN). Anyone with a valid 2015 PTIN is authorized to prepare federal tax returns. Tax return preparers, however, have differing levels of skills, education and expertise. An important difference in the types of practitioners is “representation rights”. You can learn more about the several different types of return preparers on IRS.gov/chooseataxpro.
- Ask the tax preparer if they have a professional credential (enrolled agent, certified public accountant, or attorney), belong to a professional organization or attend continuing education classes. A number of tax law changes, including the Affordable Care Act provisions, can be complex. A competent tax professional needs to be up-to-date in these matters. Tax return preparers aren’t required to have a professional credential, but make sure you understand the qualifications of the preparer you select.
- Check on the service fees upfront. Avoid preparers who base their fee on a percentage of your refund or those who say they can get larger refunds than others can.
- 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.
- Make sure your preparer offers IRS e-file and ask that your return be submitted to the IRS electronically. Any tax professional who gets paid to prepare and file more than 10 returns generally must file the returns electronically. It’s the safest and most accurate way to file a return, whether you do it alone or pay someone to prepare and file for you.
- Make sure the preparer will be available. Make sure you’ll be able to contact the tax preparer after you file your return – even after the April 15 due date. This may be helpful in the event questions come up about your tax return.
- Provide records and receipts. Good preparers will ask to see your records and receipts. They’ll ask you questions to determine your total income, deductions, tax credits and other items. 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.
- Never sign a blank return. Don’t use a tax preparer that asks you to sign an incomplete or blank tax form.
- 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.
- Ensure the preparer signs and includes their PTIN. Paid preparers must sign returns and include their PTIN as required by law. The preparer must also give you a copy of the return.
- Report abusive tax preparers to the IRS. You can report abusive tax return preparers and suspected tax fraud to the IRS. Use Form 14157, Complaint: Tax Return Preparer. If you suspect a return preparer filed or changed the return without your consent, you should also fileForm 14157-A, Return Preparer Fraud or Misconduct Affidavit. You can get these forms on IRS.gov.
The interesting thing to me about these tips is that some of them are clearly just to help the IRS, such as reporting the abusive ones to the IRS or making sure the PTIN is on the return. Others really don’t have to do with choosing a return preparer so much as reviewing the return to catch the preparer’s mistakes, which is after the fact (and many people don’t know enough about taxes to conduct much of a review).
In terms of checking credentials, I think Enrolled Agent or CPA designations are fairly good indicators of a minimum level of aptitude, though not always (and the bad ones often lie about having such credentials). More importantly, though, is the continuing education that the IRS mentions. I have found that the best return preparers are those taking the time to keep up to date on the laws and associate with others who do so they have a network they can go to for questions. That same competence transfers over to each return they prepare and they are less likely to take shortcuts that can come back and haunt return preparers.
At the end of the day, I think it will be difficult, and probably a mistake, for the IRS to regulate professional return preparers by imposing credential requirements. Access to inexpensive help is important, and regulation will lead to increased fees (e.g., attorneys like me) because of exclusivity. Everyone who earns money needs to file returns, and often the most important thing is that they can find someone who at least has a little more experience than they do and, in some cases, is bilingual. Try and find a CPA in some small town in the middle of the farmland in the San Joaquin Valley and you’ll see that they really don’t exist.
Also, I think people are already aware of the CPA credential and would want that kind of service if they could afford it, but CPAs are much more expensive than HR Block. So, identification of credentials and selectivity of the taxpayers is not really the primary problem. The problem is no one wants to pay extra for those credentials if they aren’t justified by the return. The IRS has created this demand for preparers, it is the free market that has created the status quo.
If the free market is failing the IRS, one possibility is the government entering the market. Instead of just testing, they can set up vocational schools and offer degrees for free. They can then hire a workforce of trained professionals and provide the preparation services themselves. Lets see them do better.
Daniel Layton, the author of this post, is the principal of Tax Attorney OC.