Only about 40 percent of Americans do their taxes themselves. The rest of us hire a professional tax preparer, perhaps a CPA, or use a tax preparation service company such as H & R Block or Liberty Tax Service.
"Who you hire matters in ways far more important than most taxpayers realize, because of the consequences of using the wrong preparer," warns Mary Beth LaMunyon-Jones, who is a California registered tax preparer and owner of H & R Block tax preparation offices in Central California.
‘I know what they don't'
"You can innocently become victims of a dishonest preparer. Most taxpayers do not understand the rules. They tend to believe the preparer who promises large refunds, claiming to have superior knowledge and skill in filling out returns, which most other preparers lack," she observes.
"Like most con artists, these people are convincing. The taxpayer now thinks that who they used before wasn't knowledgeable, and more importantly, not willing to go to the mat to help them, but now they have a real fighter on their side."
Last week's article described one such couple who were referred to a woman known for getting her clients substantial tax refunds. She had them sign falsified returns, resulting in thousands of dollars in additional taxes, interest and penalties - not to mention the very real risk of prosecution for tax fraud when it came to light years later.
"You want someone who stays within the law, understands tax regulations and how to legally claim all of the deductions or other relief which you are entitled to. When you hear that a certain tax preparer is fantastic at getting large refunds from the government, it is normal to be tempted to use that person. So, to keep yourself and your family out of trouble, it is simply critical to recognize the red flags and always being sure that you are dealing with a legitimate preparer," cautions La Munyon-Jones.
Become part of the tax return process
"A competent tax preparer will conduct a thorough interview, because an accurate return depends on knowing tax-relevant details of your personal situation. If this is the first time you are using the preparer and are told to just drop off your records and then come back to sign the returns, this is a red flag and can create real problems," she notes.
"A very common failure-to-interview problem occurs when Destiny, a high school student, graduates in June, joins the military, goes to boot camp, and no longer fits the criteria for being a dependent. If the preparer doesn't ask certain questions, and the parents just say that everything is the same as last year - forgetting to mention the military - their return will show the child as a dependent.
"Then, when our young soldier files her tax return, after cross-checking names and other information, the IRS sends mom and dad a letter, stating they were not eligible to claim the exemption and now owe more taxes, interest and a possible penalty for failing to file the return correctly.
"In fact, the IRS warns all tax preparers of the importance of conducting a thorough interview, to be sure the exceptions, adjustments amd deductions claimed are appropriate for the client.
"If you pay someone to do your return, it better not say self-prepared on the bottom. You need to be sure that the preparer signs it. If they do not, you cannot trust that person," she stressed.
Alphabet soup: how to check out your tax preparer
"You cannot base the selection of a tax preparer on references alone," LaMunyon-Jones firmly maintains. "Experience and having satisfied clients is no guarantee that the preparer is legally performing services, which, if not done according to law, can cost you thousands of dollars over many years, so use databases available to see if your preparer is legal," she concluded.
You can easily see if the person you are using to do your taxes is legal by going to www.ctec.org. CTEC stands for the California Tax Education Council and oversees registration requirements for tax preparers. Unless you are using a CPA, an attorney or enrolled agent (EA) to do your taxes, California law requires the preparer to be registered, and that they: 1) Sign the return; and 2) Have a $5,000 surety bond.
Adding to the alphabet soup of new - and long overdue - consumer protection regulations: The IRS now requires anyone who, for a fee, prepares or helps prepare federal tax returns to obtain a PTIN, or Preparer Tax Identification Number. The Franchise Tax Board estimates it will impact 80,000 California tax preparers.
Indeed, all of this isn't merely taxing, but may no doubt cause an H.A. (headache).
Dennis Beaver practices law in Bakersfield and welcomes comments and questions from readers, which may be faxed to (661) 323-7993 or emailed to email@example.com.