Are you wondering if your tax preparer is well qualified? Here are some major red flags that serve as warning signs to find someone else to do your taxes.
Online Tax Service Qualifications
The IRS attempted, but was unsuccessful, in passing regulation that require tax preparers to pass a test to prove themselves as being appropriately knowledgeable. This means ANYONE can legally charge a fee to prepare your tax return, regardless of how much they know about personal or business taxes.
The highest rated and most qualified tax preparers are Certified Public Accountants (CPAs), Tax Attorneys, and IRS Enrolled Agents (EAs). It is possible, but unlikely, that a preparer with these qualifications will do things that will get you in trouble with the IRS. Why? Because most of the time these individuals have too much invested in their careers to take chances with getting into trouble.
I’m sure there are some very good and very ethical business and personal tax preparers out there that do not have these qualifications, but your CHANCES of hiring someone shady are much less likely when you find an accountant who has paid their dues and put in the time required to pass the exams for these ratings.
It’s a numbers game, and with nothing else to go on, look for a CPA or an EA.
Tax Preparer Red Flags and Pricing Structure
A big red flag when choosing a professional to prepare your business income taxes is when they tell you that their fee is based on the amount of your refund or some sort of reduction of tax liability.
First of all, this is not ethical according to the IRS and is not an approved way to bill clients.
It motivates the tax preparer to be over aggressive with your deductions and this can get YOU both into big trouble, including potentially having to face criminal charges.
The taxpayer who signs the return is ultimately responsible for it’s contents, not the preparer. This doesn’t seem fair, but that’s how it works.
How can you trust an accountant to be knowledgeable about the tax code and your tax situation if they are not even aware that their marketing/billing practices are illegal?
A big red flag indeed.
Paid Tax Preparer Section Left Blank on your Return
It is illegal and another giant red flag for a paid preparer to leave this section blank. Professional tax service individuals and firms are required by law to have a PTIN and to write it in and sign the return along with the client.
If they don’t include themselves as preparers on your return, they are likely hiding something about themselves or their work. They are also really hanging you out to dry because you are the one who signs the tax return as being complete and truthful. Bad news.
Not E-Filing Your Tax Return
Since 2012, every professional tax preparer has been required to e-file the tax returns that they prepare for a fee if they file more than eleven tax returns.
When filing a paper return, any professional preparer must fill out and attach Form 8948, “Preparer Explanation for Not Filing Electronically”, to the client’s paper return.
If someone is preparing your taxes and suggesting that you mail in the return, and this form is not attached, something very fishy is going on.
I know I wouldn’t like the idea of my return being mailed in against regulations, and especially without the required forms being filed with it.
“Writing in” Tax Deductions
Making up tax deductions that do not exist is a dangerous practice that in which some under-qualified tax preparers participate. I “kind of” understand what motivates them to do this – as they care about their clients and don’t want them to have to pay taxes.
In all cases, however, they are doing their clients much more harm than good. Sometimes a shady preparer will not do this for the client but for their own benefit – like if it is because they illicitly charge a fee based on any refund, as previously discussed.
Understating your tax liability through bogus deductions that do not exist is bad, and not reporting income is a good way to end up with criminal charges brought up against you. Sure, they will likely go after the person that wrote in the fake deductions too, but that doesn’t really help you. You signed the return and you are responsible.
Tax Professionals and Personal Security
Before opening my own practice, I used to work for the biggest tax firm in the country. The careless handling of client data, even at that big firm, was appalling. I can only imagine what dangerous security flaws await the clients of some of these illegitimate preparers.
There are obviously many items on your tax return that must be kept securely, such as your bank account information and of course your social security numbers. It is very important that you find someone that you can trust will act in your best interest and handle your data with extreme care and security.
Are You a Red Flag Tax Service?
Let’s make something clear right now. I’m sure that there are plenty of very qualified and ethical tax preparers that have not gone in to take the CPA and EA exams. If this is you, do not be offended. I recommend that you turn my criticism into something positive and change your public level of professionalism…
- Do you charge a fee based on a client’s refund? Think about restructuring your prices.
- Do you not have a PTIN to fill in the pair preparer section of the tax return? Simply log into the IRS website and register for one so you can start filling out this section legitimately.
- Are you a great tax accountant but lack a CPA or EA? Why is that? I encourage you to find a self study course and work towards your EA. You will likely learn much more about business taxes that you already know, making yourself more valuable to your current and future clients. This means more income potential for your career and better service for your clients.