Do You Trust Your Tax Preparer? Maybe You Shouldn't
The IRS Taxpayer Advocate has released a report, which she shared with Congress, detailing some of the taxpayer advocate issues she feels are most important. One issue I wanted to share with you is her concern about the poor quality of returns prepared by preparer services.
The Tax Advocate says:
Tax return preparers complete about 62 percent of all individual income tax returns and therefore play a critical role in facilitating tax compliance. However, “shopping visits” conducted by the Government Accountability Office, the Treasury Inspector General for Tax Administration, and others suggest that a high percentage of preparers prepare inaccurate returns, fail to perform sufficient due diligence, and even take positions that they know are not supportable. This conduct usually results in understatements of tax (reducing federal tax revenue and potentially subjecting taxpayers to enforcement actions) and sometimes results in overstatements of tax (causing taxpayers to pay more than they owe).
The Tax Advocate recommends that unenrolled preparers be identified and given a Preparer ID Number, so these preparers can be tracked and those that provide inaccurate returns can be noted. The report doesn't say what kinds of actions could be taken against these preparers.
The Best Tax Preparer/Audit Representative
Although many people can represent you before the IRS, he best person to prepare your taxes and help in case of a tax audit is your CPA, your tax attorney, or an Enrolled Agent. These individuals have the training and certification to understand the tax laws, and they are all required to keep up their credentials with continuing education, so they are knowledgeable about tax law changes. This is another one of those "you get what you pay for" situations. I know who I would want standing with me in front of the IRS. What about you?
Comments
It’s important to note, the report issued by IRS Taxpayer Advocate reflects the quality of storefront/retail tax preparation stores. Clearly, the level of expertise at these places have always been questionable. What the report fails to acknowledge is the quality of the tax returns prepared actual professionals. Many of my new clients have used CPAs, enrolled agents and attorneys to prepare their prior year filings and I often find problems on those tax returns as well. The problem is much deeper than simply certifying tax preparers or identifying unenrolled preparers. The issue really is about the complexity of the Internal Revenue Code and the number of changes which occur to it year after year.
It’s sad but true. I had a CPA a few years ago who gave me bad business tax advice. Luckily, it didn’t affect my tax liability. Most preparers are pretty good with the very simple returns, but they don’t know the complexities of the tax law and they aren’t willing to look them up. Not all tax preparers are created equal.