Tax preparers do a big chunk of America’s tax returns — more than 80 million a year, according to the IRS — but if you’re nervous about handing confidential information to someone in a largely unregulated field, you’re not alone.
Here are some tips to help you find a good tax preparer and reduce the risk of expensive errors and exposing your finances.
First, decide if you really need a tax preparer. Everyone’s tax situation is different, but many millions of them are simple enough — some W-2s from work, mortgage interest or a few other obvious deductions — to handle in-house. If that’s the case, it might be cheaper and faster to buy software and do your taxes yourself .
“Obviously the more you have going on, the more I would say go see a preparer,” says Trish Evenstad, president of the Wisconsin Society of Enrolled Agents.
If you do need a preparer, be choosy. “I wouldn’t just simply go through the phone book and pick someone randomly,” says Melissa Labant, director of tax policy and advocacy at the American Institute of CPAs. Asking friends, family or colleagues for recommendations can quickly reveal a preparer who’s caused headaches, she said.
Tax attorneys and enrolled agents specialize in or have passed exams on tax rules, and some certified public accountants may specialize in tax preparation. At a minimum, Labant says, a legitimate preparer should have a Preparer Tax Identification Number, or PTIN, from the IRS.
Oregon State Law requires all paid income tax return preparers be licensed and maintain annual continuing education in tax law. For info contact the State Board of Tax Practitioners, The State Board of Accountancy, or The Oregon State Bar.
Enrolled Agents, are “America’s Tax Experts”, and are licensed by the US Treasury Department to represent taxpayers before the IRS at all administrative levels. All Enrolled Agents specialize in Taxes. Oregon Enrolled Agents must maintain both the Federal EA license, and the Oregon Licensed Tax Consultant license.
Enrolled Agents, CPA’s, and Attorneys who prepare tax returns are regulated by IRS Circular 230, and are held accountable at a higher level than non Circular 230 practitioners.
Professional organizations such as the National Association of Enrolled Agents (naea.org), as well the Oregon Board of Tax Practitioners, and even the IRS (irs.gov) maintain a list of licensed tax professionals who have certified they have met the licensing and continuing education requirements.
Never assume that because someone works at a big tax-prep company he or she must be an enrolled agent or a certified public accountant, Evenstad warns. And don’t assume a PTIN is valid, either — a 2014 Government Accountability Office study caught some unscrupulous preparers using fake PTINs or ones that didn’t belong to them. You can verify PTINs and professional credentials on the IRS website , and you can check accounting and law licenses on state-level CPA and bar association websites. The National Association of Enrolled Agents also maintains a directory.
Know what to look for. The IRS requires paid tax preparers to put their name and PTIN on returns they prepare. Not doing so, or asking you to sign a blank return first, suggests a preparer is up to no good, Evenstad said. Directing your refund to a bank account that’s not yours is another red flag. And make sure your return doesn’t say “self-prepared.”
Good preparers will also ask for last year’s return, Labant says. “If they don’t, then you’ll know right away this person is not exercising due diligence and they could easily be missing several key items that need to be reported on your tax return.”
The preparer should provide a secure portal for sending information, too.
“If someone called me and said, ‘Just email me a copy of your driver’s license,’ that would make me a little nervous about how well they’re protecting taxpayer identification information,” Labant says.
Report bad apples. If, despite your efforts, a preparer wrongs you, you have a few options. You can complain to the IRS by filling out Form 14157 and sending along supporting documents. Alerting the National Association of Enrolled Agents, the National Association of Tax Professionals and other professional groups might also spark an internal investigation if the preparer is a member, Evenstad says.
Getting restitution, though, might be harder. According to Council of Better Business Bureaus data, just 66 percent of customer complaints against tax preparers in 2015 were resolved — well below the national average of 79 percent across all industries, according to BBB spokesperson Katherine Hutt. By comparison, the cellular industry and banks usually have 98 percent and 97 percent resolution rates, she notes.
“Most of the time, when people are unhappy with a service like that, it’s because they didn’t check out the company ahead of time. Their complaints are usually the same thing that previous customers have complained about,” Hutt says.
If a preparer steals from you, call the police and file a complaint with the IRS.
“If they’ve stolen your identity, you definitely want to turn them in to the (IRS) Office of Professional Responsibility,” Evenstad says. “Because if they’ve stolen yours, they’ve probably stolen other people’s.”
Good preparers who make honest mistakes usually will pay your penalties, though any extra taxes will likely be on you, Evenstad adds.