What to do when your tax preparer screws up
Tax return mistakes are often accidental, like when a client tells the preparer a wrong amount, or the preparer calculates incorrectly. Other times, mistakes are downright deceitful (think: inflating deductions to get a client a bigger refund or omitting information to maximize the federal earned income credit).
Though enrolled agents, CPAs and tax attorneys are governed by standards of professional responsibility and IRS ethics, more than half of the 79 million returns filed by paid tax preparers are not bound by those rules.
Taxpayers can take a few steps to protect themselves from lengthy IRS and state agency battles and pricey penalties, if they’ve been bamboozled by a preparer
Don’t sign the return without carefully reviewing it
At the end of your tax return, there is a statement that under penalty of perjury, the taxpayer believes the information to be true and accurate.
This can hurt you when it comes time to defend your return if there is a serious mistake. If you don′t understand something or think it may be incorrect, ask the preparer to explain or correct it before signing.
Use a licensed professional
Anyone can legally prepare a tax return for compensation as long as they have a Preparer Tax Identification Number from the IRS, which costs $50 and takes 15 minutes to obtain.
Earlier this year, the Senate Finance Committee passed legislation designed to help curb identity theft and tax refund fraud, but an amendment containing recommendations for protecting the public from incompetent and fraudulent tax preparers, including requiring unlicensed PTIN holders to inform taxpayers about the differences between preparers, was shot down
Pay a flat fee
Avoid tax preparers who offer to take a percentage of your tax refund, rather than a flat fee, Ambrose said. They are incentivized to boost deductions where they may not be accurate or legal, and are eventually caught by the IRS.
Avoiding the Bad Apples
To avoid having these sorts of problems with a tax preparer, research candidates before selecting one. If possible, get referrals from people you know who can vouch for their abilities and ethics. In addition, the IRS offers a directory where you can look up professionals with specific credentials, such as attorneys and certified public accountants.
And keep in mind that just because you’re hiring someone else to do most of the numbers-crunching and box-checking, it doesn’t mean you should take a totally hands-off approach to your tax return. Ultimately, it’s your responsibility—and you’re the one on the hook for any taxes and penalties that arise from an inaccurate return.3 Make sure you review everything carefully, from the figures to the particular forms, before signing your name on that dotted line.
Can I Sue A Tax Preparer?
Suing a tax preparer is often the last resort since the taxpayer would have to incur significant legal fees. However, if the amount in question is substantial, taking the matter to the court may provide relief from undue taxes and fees. Moreover, if the tax preparer is not registered by the IRS or state-licensed, the only recourse is legal action
You can file a standard professional malpractice complaint with the state court in your jurisdiction.
To avoid dealing with these problems, it is best to research the candidates and find one that suits your needs. For example, if you’re dealing with complex financial situations, you may need regular consultations. IRS has a website where you can find professionals with valid credentials who are up to the task.
Choose return preparers wisely
It is important to choose carefully when hiring an individual or firm to prepare a tax return. Well-intentioned taxpayers can be misled by preparers who don’t understand taxes or who mislead people into taking credits or deductions they aren’t entitled to claim. Scam preparers often do this to increase their fee.
Here are a few tips to consider to help avoid fraudsters:
Look for a preparer who is available year-round. In the event questions come up about a tax return, taxpayers may need to contact the preparer after the filing season is over.
Ask if the preparer has an IRS Preparer Tax Identification Number (PTIN). Paid tax return preparers are required to register with the IRS, have a PTIN and include it on tax returns.
Inquire whether the tax return preparer has a professional credential (enrolled agent, certified public accountant or attorney), belongs to a professional organization or attends continuing education classes. Because tax law can be complex, competent tax preparers remain up-to-date on tax topics.
Ask about service fees. Avoid preparers who base fees on a percentage of their client’s refund or boast bigger refunds than their competition. Don’t give tax documents, Social Security numbers or other information to a preparer if merely inquiring about their services and fees. Unfortunately, some unscrupulous preparers have used this information to improperly file returns without the taxpayer’s permission.
Make sure the preparer offers IRS e-file and ask to e-file the tax return. Paid preparers who do taxes for more than 10 clients generally must file electronically. Since electronic filing began in the 1980s, the IRS has processed more than 1.5 billion e-filed individual tax returns. It’s the safest and most accurate way to file.
Letters to Preparers
Another tier in our outreach and educational efforts is sending letters to specific preparers. We look at the number of returns with a high likelihood of refundable credit and HOH filing status errors completed by the same preparer. And, we send letters to preparers who have a high number of these returns. We send letters based on the previous filing season before the next filing season starts and we send letters during the filing season for the current year.
The letters:
- State we believe the preparer completed inaccurate claims,
- Highlight the consequences of preparing inaccurate claims,
- Outline preparer due diligence responsibilities,
- Provide tips on preparing accurate returns and point to online refundable credit and hoh filing status tools, information and other resources, and
- Inform preparer that we are monitoring their future returns.