Tax Preparers Get Extra Vetting From IRS

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NEW YORK (MainStreet) -- Uncle Sam and his individual states have been cracking down on shady financial advisers, and now they're taking aim at tax preparers. California is leading the way in making sure its tax preparers are on the up and up too.

For consumers, it's worth knowing whether your tax preparer is legitimate since this year there will be more money on the table taxpayers won't want to lose. According to the National Association of Enrolled Agents, total tax refunds are trending up. Meanwhile, the total amount of refunds paid last year reached just more than $315 billion, a 4.2% increase from the $303 billion taxpayers saw in 2009.

So checking to ensure your tax specialist knows what he or she is doing is even more important. A lax or ill-informed tax preparer may wind up costing you a slice of that tax return pie.

The NAEA says it has strict standards for its network of tax specialists. Licensed tax return specialists must pass rigorous standards before they're allowed to tackle consumer tax returns, according to the organization's website.

"Enrolled agents must complete 72 hours of continuing professional education every three years, and members of NAEA must complete 90 hours," the NAEA says.

"Without the thorough knowledge possessed by a licensed tax professional who has passed competency testing on individual and business tax preparation, the average taxpayer is at a decided disadvantage when it comes to determining the correct amount to be withheld for taxes from his or her paycheck."

Now states such California are raising alarms over tax preparers who may not be qualified to handle tax return issues – even if he or she is legally licensed.

The state mandates that anyone who either prepares or who assists in the preparation of tax returns for a fee and who isn’t already certified with the state as a lawyer, accountant or approved enrolled agent must formally register with the state. The tax specialist must be bonded and complete courses on tax law changes every year.

The Internal Revenue Service is pitching in, too. It just rolled out a new program that gives a Preparer Tax Identification Number (PTIN) to track the performance of tax preparers across the country. California says that rule alone will impact 80,000 tax preparers statewide.

 

The IRS has also issued some tips on how consumers can determine whether their tax preparer is operating in your best interests.

1.    Avoid preparers who claim they can obtain larger tax refunds than other preparers. If your returns are prepared correctly, every preparer should end up with similar numbers.

2.    Beware of a preparer who guarantees results or who bases fees on a percentage of the refund. Official preparers are prohibited from charging a contingent fee for preparing your tax return.

3.    Understand that the most reputable tax preparers will request to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. Doing so shows that they have your best interests in mind and are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.

4.    Make sure you know who will actually prepare your return before sealing the deal, and avoid firms where your work may be delegated down to someone with less training or just some unknown worker. You should know exactly who works with your tax matters at all times and how to contact him or her directly.

5.    Determine if the preparer is outsourcing your return to a foreign country for preparation. Foreign countries do not have the same security and privacy laws as the United States, nor is there any recourse should your information be compromised as a result of lax or nonexistent privacy procedures.

Not all tax preparers are created equal. The better ones adhere to the list of rules that states like California enforce, and federal agencies like the IRS mandate.

Choosing the right tax specialist can mean the difference of how much of your own money you get to keep – and how much your tax preparer and the government get to keep, so do your vetting and get the best deal you can.

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