Tax Preparer Audit
Tax Preparer Audit
Tax Preparer Audit

Every year, more and more tax preparation businesses are popping up like toadstools. Drive through any neighborhood, or delve into the yellow pages, and you’re likely to find hundreds. Where have so many tax professionals come from? Odds are good that not all of them are legitimate or, at least, being well-versed in what they do.

This proliferation of tax prepares has caused the IRS to look more closely into returns filed by tax professionals. A questionable ATP is likely to land you in a world of trouble, making your return the object of a tax prepare audit.

This suspicion comes from the fact that hardly any states have any kind regulations for professional tax prepares in place, with Oregon, California, New York, and Maryland being the only exception. The accredited tax professional you hire from H & R Block is likely not to be accredited at all.

That’s not to say they don’t do good work, especially seeing as how most tax preparation companies have dedicated training programs in place. In the IRS’ eyes, however, it means that unlicensed tax preparers are likely to make mistakes, not being up to date and current on the changing tax laws.

This abundance of unlicensed tax preparers has caused the IRS to issue a batch of new rules, as of 2011, that includes:

  • All professional tax preparers are required, when signing federal returns, to register with the IRS, getting a preparer tax identification number
  • Paid tax preparers are required to undergo background checks to make sure they’ve filed all pertinent personal and business tax returns and t paid all taxes on those returns
  • Competency tests are required for paid tax preparers. This doesn’t apply, however, to certified public accountants, licensed IRS agents, and attorneys
  • Ongoing professional education is required for all professional tax preparers (except for CPAs, attorneys, and IRS agents)
  • IRS ethics are now applicable to all professional preparers. The IRS is able to discipline tax preparers, up to and including suspension or termination, under these rules, when found to be engaging in unethical or disreputable conduct

They didn’t just create a whole bunch of rules, either, but issued thousands of follow-up letters to tax professionals, warning them against some of the common mistakes they’d been seeing.

Some of these common mistakes, commented on in these letters, are:

  • Official correspondence from the IRS was received by countless professional return preparers, encouraging them to be careful in areas where the IRS has seen frequent errors, such as the Earned Income Tax Credit and improper deductions
  • IRS agents paid visits to professional tax preparers, discussing their obligations and responsibilities to accurately prepare tax returns
  • The IRS began their own sting operation, with agents posing as taxpayers and visiting tax preparers, ensuring they were following the proper laws and properly preparing accurate returns

Regardless of whether or not you file your own taxes, you are legally responsible for your return, even if filed by someone else. A questionable ATP can land you with a tax preparer audit on your hands, so look out!

Signs Of A Sketchy Tax Preparer

Just because someone doesn’t work for a huge firm, or might be operating of their home or a rundown office does not necessarily mean they don’t know what they’re doing.

Some suspicious signs from a tax preparer to watch out for include:

  • Be wary of preparers claiming to be able to get you a great deal more money than other preparers.
  • Watch out for commission-based services,. Tax preparers who take a cut off the tip have every incentive to inflate your return, to earn more money for themselves. Instead, look for a flat-fee based tax preparer.
  • Overnight sensation. You want to find a certified tax preparer who’s been established for a significant amount of time, so be wary of these fly-by-night shops that are popping up everywhere. They might be gone, once their questionable practices have landed you in the fire.
  • Uncredited. While anyone can file your taxes for you, only a credited ATP can speak for you in front of the IRS.
  • No PTIN. Remember, as of 2011, the IRS requires all people filing taxes for others to possess a professional tax identification number.
  • Illegitimate Children (Credits): Earlier this year, the National Consumer Law Center, or NCLC, conducted two secret shopper programs, in and around Florida and North Carolina. The secret shoppers would claim to be single parents, claiming the children to stay with the other parent for more half the time. Despite the fact that the law clearly states a child must be in your care for more than half the year, 8 out of the 15 tax preparers told the parents to claim the child anyway.

Remember, regardless of who filed it, you are legally responsible for your tax return. A sketchy tax preparer may make you the subject of a tax preparer audit, which no one needs.

To find out how to stay on the good side of the IRS, while still maximizing your tax return potential, contact us today!