|“Most paid tax return preparers don’t have to meet any standards for competence in order to prepare someone else’s return.” |
This statement by U.S. Senate Finance Committee Chairman Ron Wyden (D-OR) at a hearing earlier this week highlighted a problem that the Accreditation Council for Accountancy and Taxation (ACAT) has been battling for years: Incompetent and unscrupulous tax preparers.
The hearing was held just as Americans are putting the final touches on their 2013 tax returns.
Anyone can purchase an off-the-shelf tax program, hang a shingle and become a paid preparer. Unlike other industries, there is no national licensing requirement to become a paid preparer.
“In some egregious cases, preparers calculate a taxpayer’s refund in person and skip the line that shows who did the work,” Wyden reported. “Then after the taxpayer leaves, the preparer falsifies the math to boost the refund, files the return and pockets the difference. And worst of all, unless the taxpayer can prove what happened, they’re on the hook for the money when the IRS finds out.”
“Selecting a tax preparer is a decision that carries the same weight as selecting your doctor, dentist, attorney, or any other professional service provider,” says Roy Frick, EA, ABA, ATA, ARA, LPA, of Frick Accountants, Ltd., president of ACAT. “Most people would never hire these or other professionals without proven credentials.”
A Call for New Standards
A high-powered panel of experts at the hearing called for new standards to regulate tax preparers.
IRS Commissioner John A. Koskinen said, “Tax return preparers are a vital link between the IRS and taxpayers, especially given that the vast majority of people seek help in doing their taxes. The IRS believes it is critical to ensure a basic competency level for tax return preparers and to focus our enforcement efforts on identifying and stopping unscrupulous preparers.”
The Government Accounting Office testified, “If Congress agrees that significant preparer errors exist, it should consider legislation granting IRS the authority to regulate paid tax preparers.”
Janis Salisbury, an Enrolled Agent and Oregon Licensed Tax Consultant, added, “We recommend that Congress emulate Oregon’s regulation of tax return preparers and provide the IRS with the authority to require individuals to demonstrate minimum competency in tax return preparation.”
President Obama’s Fiscal Year (FY) 2015 Budget includes a proposal to explicitly authorize the IRS to regulate all paid tax return preparers.
Voluntary Credentials Protect Taxpayers
Since all tax preparation credentials are earned voluntarily, it is important for taxpayers to look for a preparer who has obtained voluntary credentials validating his or her experience. Having credentials typically requires passing exams, abiding to a code of ethics and taking a minimum amount of continuing professional education (CPE) every year.
For example, the credentials behind Frick’s name demonstrate his qualifications to prepare tax returns. Many of them are issued by ACAT, one of the most respected sources for tax preparation credentialing.
Here’s a guide to common credentials that demonstrate a high level of competency:
Certified Public Accountant (CPA):
This is a widely recognized credential for tax preparers and accountants. Each state has its own Board of Accountancy responsible for licensing CPAs who practice in that state, and each board issues rules that govern what a person must do to become a licensed CPA. CPAs are authorized to represent taxpayers before the IRS.
Enrolled Agent (EA):
An enrolled agent is a person who has earned the privilege of representing taxpayers before the Internal Revenue Service by passing a three-part comprehensive IRS test covering individual and business tax returns. Enrolled agent status is the highest credential the IRS awards.
Tax Attorneys: Tax attorneys are lawyers who specialize in tax law. They can handle complex, technical, and legal issues. Tax attorneys are authorized to represent taxpayers before the IRS.
Tax return preparers and accountants can voluntarily earn credentials from ACAT to demonstrate their expertise in taxation, accounting and business matters. Preparers must pass rigorous exams, adhere to a code of ethics, and meet experience and continuing education requirements to earn these credentials. They include:
Accredited Tax Advisor (ATA):
These practitioners can handle sophisticated tax-planning issues, including planning for owners of closely held businesses, planning for the highly compensated, choosing qualified retirement plans, and performing estate tax planning. Their expertise covers tax returns for individuals, business entities, fiduciaries, trusts and estates, as well as tax planning, tax consulting and ethics.
Accredited Tax Preparer (ATP):
These practitioners have a thorough knowledge of the existing tax code and the preparation of individual tax returns. Their expertise covers comprehensive 1040 issues, including supporting schedules and self-employed returns, and ethics.
Accredited Business Accountant/Advisor (ABA):
ACAT’s designation for Accreditation in Accountancy, the ABA is a prestigious professional accounting credential that demonstrates to clients, potential clients and employers that the credential holder has a thorough knowledge and proficiency in financial accounting, financial reporting, financial statement preparation, taxation, managerial accounting, business law, and ethics for small- to medium-sized businesses.
Accredited Retirement Advisor (ARA):
This credential recognizes professionals who have a thorough knowledge of topics relevant to retirement planning and special issues of senior citizens including tax planning and tax preparation for decedents, estates, and trusts; and applying your knowledge and skills in real-life situations when serving aging clients.
Some tax preparers may also use Registered Tax Return Preparer (RTRP), which was issued by the IRS. RTRPs
have passed an IRS test establishing basic competency in preparing individual income tax returns (Form 1040s) but at this time the IRS is no longer testing for the RTRP and has no ongoing requirements for maintaining this designation.
The Internal Revenue Service (IRS) does require all paid tax preparers to have a Preparer Tax Identification Number (PTIN), so taxpayers should make sure their tax preparer has one and enters it on their return. Some states – including Oregon, California, New York, and Maryland – also require preparers to register.
Follow these tips on how to choose a tax preparer:
- Be careful with tax preparers who claim they can obtain larger refunds than other preparers.
- Avoid preparers who base their fee on a percentage of the amount of the refund.
- Use a reputable tax professional who signs your tax return (including a Personal Tax Identification Number) and provides you with a copy for your records.
- Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed, including in case of an IRS audit of your return.
- Qualified preparers can not only complete your tax return, but also help you with tax planning strategies for future years.
- Review your return before you sign it and ask questions on entries you don't understand.
- No matter who prepares your tax return, you (the taxpayer) are ultimately responsible for all of the information on your tax return. Therefore, never sign a blank tax form.
- Find out the person’s credentials.
- Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
- Reputable preparers will ask to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so, they are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.
When interviewing a prospective tax preparer, ask these questions:
- Do you offer a free initial consultation?
- How do you keep up with the latest tax law?
- Do you regularly take continuing education courses?
- Are you a member of any professional tax or accounting organizations?
- What are your professional credentials?
- Do your credentials or professional affiliations require you to abide by a code of ethics?
- How do you determine your fee to prepare my return(s)? Is it a fixed fee or an hourly rate?
- When do you require payment?
- When can I expect to receive my completed tax returns back from you?
- How long have you been in business?
- Are you bonded or insured?
- Do you outsource any tax preparation services?
- What happens if I get audited?
- Are you registered with the IRS with a Personal Tax Identification Number (PTIN)?
- Will you store my tax information? How will it be stored and for how long?
- Can I contact you after tax season if needed regarding my return?
- Who will prepare my return? Will it be you or someone else in your office?
- If you have employees who will work on my return, do they hold any credentials and do they take continuing education courses?
If you are not satisfied with the answers you receive, keep looking. ACAT offers an online resource at www.findataxpro.org
to help find a qualified tax preparer.
The Accreditation Council for Accountancy and Taxation (ACAT) is an independent accrediting and monitoring organization affiliated with the National Society of Accountants. ACAT accredits professionals in independent practice who have demonstrated measurable knowledge of the principles, practices, and ethical standards of accounting, taxation, information technology and related financial services. For more information, visit www.acatcredentials.org