I’ve seen a lot of stories in the news lately about tax preparer fraud. The IRS is catching these folks and they’re going to jail. That’s a good thing in my opinion. Those of us with licenses and who play by the rules really hate the crooks; they’re bad for business.
The IRS tried to regulate preparers by setting up the Registered Tax Return Preparer (RTRP) designation. I made all my employees take (and pass) the test as a condition of employment, but the RTRP requirement was thrown out in court so anybody can hang up a shingle saying they’re a professional tax preparer and they don’t need to do didly squat to prove they’re competent.
So how do you tell if the person you’re hiring to do your taxes is legit or not? I was recently asked that question at a panel discussion about Enrolled Agents on the web the other day. The feedback I was getting from the non-tax preparers is that they don’t know what questions to ask, or what to look for when hiring a preparer.
Enrolled Agents are licensed by the Department of the Treasury to represent taxpayers before the IRS. That means we are hired by and work for citizens to help them with their IRS issues. We do not work for the IRS. CPAs and attorneys are also allowed to represent citizens before the IRS; they are licensed by their respective states. EAs are federally licensed.
So, being an EA, I’m going to recommend you hire an EA. My buddy the CPA will say to hire a CPA. And I’ve got a couple of tax preparer friends who don’t have any initials after their names that, to be perfectly honest, are really good tax preparers. But the biggest issue I think a regular person has to be aware of is—how do you know the person you hired isn’t a fraud?
Face it, I can tell you I’m an EA until I’m blue in the face, but how do you know? Ask to see my license! Oh sure, I’ve got a nice little document hanging on my wall. I got that back when I first became an EA. But EAs need to renew their licenses every three years. You want to take a look at the license I keep in my wallet. (I’m not going to post it online to prevent some fraud monster from copying it.)
Another way to check out a preparer is to go online and look them up. You can check on an EA by going to the National Association of Enrolled Agents website: https://portal.naeacentral.org/webportal/buyersguide/professionalsearch.aspx
If you want to check out a CPA, you can find out their status at CPA verify: http://www.cpaverify.org/
One thing that everyone who prepares returns professionally must have is a PTIN number, that’s a Preparer’s Tax Identification Number. Anyone who gets paid to prepare tax returns must use one of these numbers when preparing your return. You can check on a PTIN number by checking out this directory: http://www.ptindirectory.com/ the big problem with that directory is that if the preparer hasn’t enrolled in it, she won’t be listed. Now, the IRS is supposed to have their own directory, but they charge you $35 and they send you a CD, so that’s really not a user-friendly option.
It’s important to know that non-paid preparers, like the volunteers at VITA or AARP, do not have to use a PTIN on your tax return. So if you’re using one of those services and there’s no PTIN number on your tax return, that’s okay. VITA does have a pretty decent training program for its volunteers.
This is important: If you pay someone money to prepare your taxes and there’s no PTIN number for the preparer down by the signature line—Walk away and do not pay for the return. That’s the number one sign of tax fraud. The PTIN is the IRS’s way of keeping track of tax preparers. Anyone not using a PTIN is hiding something.
Here’s another thing to watch out for: If your preparer promises you a big refund before she even sees your paperwork. How can they know how much you’ll get back if they haven’t even looked? That’s another deadly warning.
Another big fraud scam is when they say they can get you money for something you haven’t done: for example—college tax credits. That’s the most recent scam that tax preparers went to jail for in my city.
What’s scary is, I think I spoke to one of their clients on the phone last year. I received a call from a fellow asking me what I’d charge to do a tax return with a college tax credit. I asked the man a few questions about his return and I realized that he didn’t qualify for a college tax credit—and I told him so. He didn’t seem to care he just wanted me to prepare the return, claiming the illegal credit, and charge less than the other guy who told him about the scheme. I told him I wouldn’t do that return for him. I’m not sure who he had gone to, but at least one group of preparers is now going to jail for illegally preparing returns claiming credits. http://www.stltoday.com/news/local/crime-and-courts/owner-of-st-louis-mo-money-tax-prep-franchise-pleads/article_804ad59d-d455-5865-a2f8-28b15a49d6fd.html
So, here’s my best piece of advice: if a tax preparer tells you that you can get money back for something you know isn’t true, DON’T DO IT! You could wind up in big trouble, and your preparer could wind up in jail.
The other day at a networking meeting I was asked the question, “What Can an Enrolled Agent Do for Me?” I really had to think about that. You see, I had two different answers: The first one was, “nothing” and the second one was, “everything.” Both answers are right. Let me explain.
An Enrolled Agent is someone who is licensed by the Department of the Treasury to represent taxpayers like yourself in front of the IRS. Let’s say you are getting audited, you can hire an Enrolled Agent to help you through it. If you have an Enrolled Agent, you don’t have to talk to the IRS at all; the EA can do all the talking for you. That’s probably one of the biggest advantages.
You can represent yourself, but most taxpayers really should not try to represent themselves during an IRS audit. You’ve probably heard the saying, “The defendant who tries to represent himself in court has a fool for an attorney.” It’s pretty much the same in an audit. Honest, intelligent people can get themselves tripped up by the IRS.
For example: one taxpayer was trying to represent herself when the IRS denied her refund claim on an amended return. She had made numerous phone calls and written letters to the IRS explaining her claim, but was getting nowhere. When she called me in, I discovered that she had been responding to what she “thought” was the problem, not what the IRS was asking for. It’s actually a fairly common mistake—talking to the IRS can be confusing.
Another issue is debt resolution. You might have seen those tacky TV commercials where the little old lady says, “I settled my taxes for pennies on the dollar.” That’s known as an Offer in Compromise (OIC). And while that company is out of business now (they used some questionable practices) an Offer in Compromise is something that an Enrolled Agent can do for you. But there’s a really important thing about preparing an Offer In Compromise in the first place: it’s knowing if you really need one in the first place. For example: I once received a call from a woman who wanted me to prepare an OIC for her because the IRS said she owed them $15,000. Well, I could have just done the OIC paperwork, but I reviewed her tax returns first and found that the IRS actually owed her $8,000 instead. An $8,000 refund is a whole lot better than paying anything to the IRS isn‘t it?
Enrolled Agents are required to prove their competence in all areas of taxation, representation and ethics before they can practice before the IRS by passing a three-part federal exam. All enrolled agents specialize in taxation. This is very different from attorneys or CPAs who are licensed by their respective states and may not specialize in taxation at all.
An Enrolled Agent can prepare a tax return, represent you in an audit, and help you settle your IRS debt. Some Enrolled Agents can even represent you in Tax Court, but only those EAs that have passed a special Tax Court exam can do that.
The Enrolled Agent designation was created back in 1884 when Congress passed the Horse Act. At the time there were lots of dubious claims for Civil War reparations—there were more claims for horses then there were horses lost in the Civil War. Most of the dubious claims were from agents representing the people with claims as most of the agents were scam artists and con men. Congress decided that the agents needed to be regulated. They created a standard which required suitability checks, criminal record checks, moral character, and testing. When the income tax was passed in 1913, the role of Enrolled Agent was expanded to include claims for relief of citizens whose taxes had become inequitable. As tax regulations became more cumbersome and complex, the role for EAs kept expanding.
As an Enrolled Agent, I can do a lot to help you with your taxes; but, I’m no longer able to get Congress to give you a horse.
For more EA information you can check out the McTax Hangout video: https://plus.google.com/u/0/106432421922678528479/posts/iKYcxFGzZjn?cfem=1
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.