Taxes are complicated. Although, some returns are fairly easy to do, with Congress changing the rules all the time, it really helps to hire someone who knows what they’re doing.
Okay, I’m going to toot my own horn here, but Enrolled Agents are licensed by the Department of the Treasury to represent people before the IRS in all tax matters. We have to pass a test. Actually, it’s nine hours worth of tests divided into three parts. You have to pass all three before you can call yourself an EA.
EA’s are also required to take 72 hours of tax training every three years to keep their certification. And we also have to pass a tax compliance check—meaning, the IRS takes a closer look at my tax return.
Most of those people at your big box chain tax stores are not EA’s.
There’s also a new preparer designation called a Registered Tax Return Preparer, or RTRP for short. They also have to pass a test, take continuing education, and they have the ability to represent taxpayers before the IRS but it‘s limited. At Roberg Tax Solutions, everyone who prepares returns is either an EA or an RTRP, meaning that we’ve all got the licenses to do our jobs. The most basic tax preparer designation is a provisional PTIN holder-but even they must do the continuing education credits.
It’s important to know that because most tax preparers out there don’t have any credentials. None. Every day I hear stories about people who used a so-called “professional” and got in trouble with the IRS because the “professional” didn’t know the tax law, or perhaps chose to ignore it.
Okay, the IRS requires that I say this: ‘The IRS does not endorse any particular individual tax return preparer. For more information on tax return preparers go to IRS.gov.’ Just wanted to make sure I got that in there.
Now I was going to write about how you don’t want to hire the guy in the crazy costume to do your taxes. But I’m not in a position to say that. You see, every Halloween, Roberg Tax Solutions dresses up and helps with the Maryland Heights Halloween parade. We used to dress up for the Pujol’s Foundation Winter Carnival too until they discontinued that.
So, go ahead and hire the tax person in a crazy costume. Just make sure that you check his or her credentials for doing taxes first. (By the way, the guy in the Shark costume is Mike, our new guy. He’s in the shark costume because, well–he’s the new guy. And the shark dance? Well, the little kids at the parade kept begging him to “Do it again!” For what it’s worth, he’s better at taxes than he is at dancing.)
One of my biggest complaints is about fake tax preparers. They’re all over the place. They magically appear during tax season and then disappear on or before April 15th. When the IRS letters start showing up, they’re nowhere to be found and their victims wind up paying me (and people like me) lots of money to get them out of the jam they’re in.
For example: One year I had to assist five different people who received audit letters and all of them had had their returns prepared by the same woman. Besides the fact that all the tax returns were wrong—the thing they had in common was that all of them said they had been “self-prepared,” even though all five of the people who came to me stated that this woman had prepared their returns and that they each had paid her $200 for the service. I’ll never know how many bad returns that person did—but if five of them walked through my door, I‘m guessing that there were a whole lot more.
So how do you know you’ve got a lemon preparer? The best way to know is to see if he or she has something called a PTIN number. (PTIN stands for Preparer Tax Identification Number.) A real preparer signs her name on your tax return and puts her PTIN number on it. A fake preparer does not sign your return and your return will say “self-prepared.”
Most folks don’t know that professionals are required to have PTINs. Unless you were burned by a bad preparer in the past, it’s not something that would ever be on your radar. It’s on my radar because I have to tell people they’ve been burned on a regular basis. It’s never a fun conversation.
So how do you know if you’ve got a real tax professional instead of a fake? Well now there’s a directory and you can look your tax preparer up. All you have to do is go to: http://www.ptindirectory.com/
You can type in your preparer’s name and if they’ve got a PTIN, you can find them there. For example: my last name is Roberg and I work in Missouri. If you wanted to check my credentials, you’d go to the site and type those in and I’d be there.
Or say you don’t have a tax preparer and you’re looking for someone. You can go to the website and type in your zip code and it will give you a whole list of preparers in your area. For example, I work in the 63146 zip code area. If you type that in, well of course I’m on that list, but so are a whole bunch of other tax folks who work in my area as well.
Click on a name and it will give you the person’s credentials and business address. EA means enrolled agent (that’s what I am.) EAs are licensed by the Department of Treasury to represent clients before the IRS. CPAs are Certified Public Accountants and RTRPs are Registered Tax Return Preparers. RTRP is the new tax professional designation, it means the person has passed a test demonstrating competency is basic tax return preparation. Persons with PTINs but no credentials will just have their names listed.
Will hiring a professional with a PTIN prevent you from ever getting audited? No, I can’t promise that. But it does show that you’ve hired a professional who’s serious about obeying the law, and that’s something you want in your tax preparer.
Is your CPA qualified to do your taxes? Now that seems like a pretty dumb question right? Obviously CPAs do taxes and they’re smart so they can, right? So the answer should be yes. But to be honest, the real answer is: not always. And that’s been a pretty hot topic lately among tax professionals.
Here’s the story—The IRS has cracked down on tax preparers. They’ve started a new program where all preparers (even CPAs) must have something called a PTIN (Preparer Tax Identification Number) that goes on every tax return so they can be identified. They’ve also started a program that all tax preparers need to pass a test in order to get paid to prepare income taxes. People who pass the test are called Registered Tax Return Preparers (RTRPs). In addition to passing the test, RTRPs are required to take 15 hours of Continuing Professional Education credits every year.
Some people who do taxes do not have to take the RTRP test. Enrolled Agents (that’s what I am) don’t have to take the RTRP test because we already passed a series of tests that is more complex than the RTRP test. We’re licensed by the Department of Treasury, and we are required to take 24 income tax continuing education credits per year. Our licenses come up for renewal every three years, and we basically have our personal tax returns reviewed by the IRS before they grant us a new license. Because of our training, we can do things that RTRPs aren’t allowed to do. If you hire an EA, you know that person has had quite a bit of tax training and should be up to date on all the tax laws.
CPAs are another group that does not have to take the RTRP test. Once again, they’ve already passed the CPA exam—which is an even nastier test than the EA exam. (I often get into the EA versus CPA debate but I will concede that their test is harder than the EA exam.) CPA stands for Certified Public Accountant but one of my CPA friends says it stands for “the test is so awful I Couldn’t Pass it Again.” It is a bear of a test. CPAs are licensed by their respective states. They are also required to take continuing education credits to keep up their licenses—but here’s the problem—CPAs aren’t required to take any income tax education to maintain their licenses and do tax returns. None.
Many CPAs who prepare taxes take tax classes for their CPE credits—at least an update class. Update classes are important because the government changes the tax laws so frequently. There are hundreds of tax law changes every year—sometimes it seems like we get daily reports of new laws from Congress. Anyone who doesn’t at least take an update class every year shouldn’t be doing tax returns.
And that’s where the problem with CPAs doing tax returns lies—the ones who don’t keep up with the tax law. For every year that a CPA doesn’t update his tax education—there are more and more mistakes that happen. Sometimes it’s a little thing like a $30 telephone tax credit, maybe it’s a little bigger like missing a $400 making work pay credit. It was quite awhile ago now that the IRS changed the definition of a qualifying child for EIC purposes—you get that wrong on your tax return and you could be in big trouble. It was back in 2005 that the IRS changed the “uniform definition of a child” and I’m still seeing returns being prepared under the old rules. 2005!
I had a little “conversation” with someone who had incorrectly prepared my client’s tax return. (I was representing the fellow in an audit, but I hadn’t done the return.) “Well Missy, I’ve been doing taxes for over 20 years now and I think I know what I’m doing.” That was the problem—he didn’t know what he was doing, that’s why the client was being audited. The tax rules today are not the tax rules of 20 years ago. Heck! They’re not even the same rules as last year! (By the way, don’t call me Missy either.)
So how do you know if you’ve got yourself a CPA who knows taxes or not? Unless the IRS decides to monitor CPA training or licensing, the only way to protect yourself from a CPA who doesn’t really know taxes is to ask questions, the big one being—did you take a tax update class this year? Any CPA who takes tax season seriously did. Any CPA who didn’t take a tax update class doesn’t—and you should walk away.
There are competent, qualified CPAs out there who do a great job of preparing tax returns. Right now, there’s no way to tell who they are unless you take the time to ask questions. Until the IRS decides to officially identify the CPAs who are qualified to do taxes, asking questions is your only defense.