Not all accountants are created equal
It’s a decision the IRS is saying shouldn’t be made lightly.
Taxpayers who decide they need help when preparing their taxes should choose their accountants with care and caution – since ultimately the legal responsibility falls in the payer’s hands.
While most accountants and preparers are professional and honest, some engage in fraud and other illegal activities.
Return preparer fraud involves the preparation and filing of false income tax returns by preparers who claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients.
The IRS lists examples of fraud they see, such as preparers manipulating income figures to fraudulently obtain tax credits, such as the Earned Income Tax Credit. In some situations, the client, or taxpayer, may not even know of the false expenses, deductions, exemptions and/or credits shown on his or her tax return.
However, when the IRS detects a fraudulent return, the taxpayer – not the return preparer – must pay the additional taxes and interest and may be subject to penalties.
The IRS has launched a new Return Preparer Program that focuses on enhancing compliance by preparers by investigating and referring criminal activity for prosecution.
The IRS can also assert appropriate civil penalties against unscrupulous return preparers.
It’s critical that you never sign on word alone. Taxpayers should never sign anything blank and they should review the return before signing it and ask questions on entries they don’t understand. While there are preparer penalties that come with bad filings, the consequences usually hit the taxpayer’s pocketbook.
Be cautious of tax preparers who claim they can obtain larger refunds than other preparers. Ask why and how.
Avoid preparers who base their fee on a percentage of the refund. Use a reputable tax professional who signs the tax return and provides a copy.
Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months, or even years, after the return has been filed.
Check the person’s credentials. Only attorneys, certified public accountants and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
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 receipts and will ask multiple questions to determine whether expenses, deductions and other items qualify. By doing so, they are trying to help their clients avoid penalties, interest or additional taxes that could result from an IRS examination.
Lance Fenton is a certified public accountant and partner at Cooper Norman in Boise.