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7 Tips to Selecting the Ideal Tax Preparer

April 13, 2012 By

Getting the right tax preparer may keep you from being audited by the IRS, save you on taxes payable by claiming the right deductions and credit, provide a more time and cost efficient service, among many other benefits. You therefore, need to carefully select the tax preparer to handle your taxes. Below are 7 tips that you can use to review a tax preparer before taking up his or her services:

1. Licensed by the IRS as a Tax Preparer

The first check for any tax preparer is to confirm that he or she is licensed by the IRS. In 2011, the IRS introduced new regulations for tax preparers. A tax preparer is now required to obtain a Preparer Tax Identification Number (PTIN) and an annual preparer license from the IRS before practicing. Preparers who are not Enrolled Agents, attorneys or CPAs will be required to sit and pass a test and undertake annual continuous training to keep their license. Therefore, ensure that your preparer is licensed and has a PTIN.

2. Professional Qualifications of Preparer

Besides the PTIN, it may also be advisable to seek for further professional qualifications. Depending on the nature of your returns, you may require an accountant or even an attorney to handle your returns. You should therefore check for such professions. You should also review the preparer with various professional bodies that he or she is a member of. You can use services such as Better Business Bureau to verify integrity of the consultant.

3. Costs of Services

You should also review the fees charged by the preparer. Different methods are used to charge the consultancy fees. Some preparers charge an hourly rate while others charge based on complexity and number of forms being filed. According to a survey done in 2010, the average paid by those interviewed was $233 for a State and IRS return for taxpayers who were itemizing and $128 for state and Federal returns for taxpayers who were using standard deduction. Therefore, ensure that you are not overcharged. You should also stay away from preparers who use unprofessional ways of charging fees such as fees structure based on the amount of refund that the preparer is able to get you.

4. Scope of Work Handled by Preparer

Preparers handle different aspects of tax and you need to ensure that a tax preparer provides the services that you require. Some tax preparers handle only IRS taxes while others handle Federal, State and Local taxes. Some tax preparers only handle certain types of taxpayers while others will not handle issues such as late taxes, installment tax requests, or tax representation. You therefore, need to know the scope of work of a given tax preparer before committing.

5. Years of Experience

The years of experience are also an important factor to consider for tax preparers. Tax is a complex subject and there are many different situations and matters that may arise. For this reason, experience plays an important role in knowing how to handle complex tax issues and how to deal with the IRS. It is therefore, advisable to seek a preparer with considerable years of experience in the business.

6. Support in Case of an IRS Audit

Some tax preparers and tax software firms provide an undertaking to represent you or provide support free of charge should the IRS want to audit you for returns that the preparer filed or that you filed using the tax software. Other tax service providers do not give such an undertaking. Therefore, you need to consider such terms before signing up for the preparer services.

7. Tax Support beyond Filing

You also need to find out if the preparer is available for any advice or tax support during the year. Some preparers are only available during peak tax season just for the services of filing returns. They are not available for any further tax consultancy such as representation, or even tax advice.

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Factors to Consider When Choosing a Tax Attorney for Tax Help

March 28, 2012 By

When filing tax returns, it is advisable to seek the help and guidance of professionals. The IRS usually advises taxpayers to seek the help of tax professionals when filing tax returns so that they do it efficiently and effectively. The IRS further emphasizes that the taxpayer should, at all times, be responsible for what is filed, even when done by a tax expert. Thus, choosing a tax preparer should be done with utmost care, with someone you can trust.

The IRS requires taxpayers, especially those who seek help from tax experts, to make sure that the professionals sign the tax returns, and also enter their PTIN- Preparer Tax Identification Numbers.

The most important factors to consider when choosing a tax preparer (tax expert) are:

        i.            Qualifications of the preparer. All tax preparers are supposed to be in possession of PTIN, as per the new regulations. Besides having a PTIN, it is important to enquire that they are affiliated to a professional association and that whether they regularly attend educational classes. The IRS is also putting in place test requirements to ensure that tax preparers are qualified and meet all competency requirements.

      ii.            History of the preparer. Here, one should check to see if the preparer has any questionable history, especially in connection with BBB (Better Business Bureau). Further, the taxpayer should check the status of the expert’s license and establish whether and disciplinary actions have been dealt out to him/her. The IRS Office of Enrollment can be contacted to enquire about enrolled agents.

    iii.            The taxpayer should find out whether the taxpayer has an electronic filing system in place. Usually, paid preparers who handle more than ten clients’ returns handle the filing process electronically. With the advancement of technology, it is paramount to choose a preparer who has IRS e-file system.

    iv.            Provide necessary receipts and records required to prepare tax returns. Normally, reputable preparers ask a number of questions so that they can be able to accurately determine an individual’s total income, and their qualifications for deductions, expenses, and other key necessities. It is a violation of the rules of the IRS e-file system to use a preparer that files returns electronically before receiving his/her Form W-2.

      v.            The tax preparer chosen should always be available for consultation. It is important to choose a tax preparer that is available for consultation, even after the date of submission of returns is due, just in case issues to do with tax returns emerge later on .

    vi.            A blank tax return form should never be signed. One should avoid any preparer that requires him/her to put your signature on a blank return.

  vii.            The preparer should sign and include his/her PTIN in the form. The law requires that any paid preparer signs and put his/her PTIN in the return form. The responsibility of the contents of the form lies in the taxpayer’s hands and not the preparer. The taxpayer must also obtain a copy of the return from the preparer.

  1. Before signing the return, it is important for the taxpayer to carefully review it. He/she must go through the returns and ask questions where there is doubt; it is important to understand the contents of the return before signing it.

    ix.            Enquire about the service fee of the preparer. Preparers who charge their fee based on a fraction of the refunds should be avoided. Similarly, those who boast that they can get larger refunds should also be avoided. Any refund from the IRS should be deposited into the taxpayer’s account and not the preparer’s.

      x.            Abusive or suspected tax preparers should be reported to IRS. They can be reported to the IRS by filling out Form 14157.

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Reflections – Top 6 Tax Events of 2011

March 12, 2012 By

Even as we progress into 2012 and as the tax season heats up even further, it is good to reflect on 2011 and review the events that made the tax headlines.

1. Removal of 2 Year Time Limit on Innocent Spouse Relief

In 2011, the IRS made a historic change to the 2 year limit on the Innocent Spouse Relief. The two year limit had been subject of controversy for years as many felt that it locked out genuine innocent spouses from the benefit of the relief. Prior to this ruling, about 2,000 Innocent Spouse Relief applications were being rejected by the IRS every year for not meeting the 2 year limit.

2. New Tax Preparer Rules

Another major tax event for 2011 was the introduction of more stringent rules for tax preparers. The IRS introduced new rules that required all preparers to apply for new Preparer Tax Identification Numbers (PTIN) before practicing. For some qualifying professionals such as attorneys and CPAs, the PTIN was automatic as long as the professional did not have outstanding issues with the IRS. For the rest of the applicants, they were expected to take a competence test before getting the PTIN. Furthermore, this group of preparers will also now be expected to take 15 hours of continuous tax training every year in order to continue practicing as preparers. These new rules took effect from January 1st 2012.

3. The Form 1099 for Small Businesses Repeal

In 2011, politicians passed a new law that would have required businesses to serve all their suppliers whose business transactions exceeded $600 a year with a Form 1099 MISC. This new law was to take effect on January 1st 2012. Currently, businesses are only required to provide the Form 1099 to a few suppliers such as consultants. With the introduction of the new bill, businesses would have had to significantly increase their administration and paperwork as they prepared a Form 1099 for all their suppliers. Following the enactment of the new law, businesses and stakeholders complained and campaigned against the bill and thankfully, the politicians had their plea and repealed this law. 

4. The Backfired IRS Debit Card Solution

In 2011, the IRS also introduced a debit card that was to be issued to taxpayers who did not have bank accounts but who were expecting refund checks. This group of taxpayers seems to be the most disadvantaged, as they have to await a physical check in their mail so as to cash their refunds, which can take a while. The IRS introduced the debit card in a bid to resolve these delays. However, the response from taxpayers was very low and the IRS has decided to discontinue the product.

5. 2011 OVDI

Another major tax event for 2011 was the Offshore Voluntary Disclosure Initiative (OVDI). This was an initiative that was set to provide amnesty to taxpayers who had offshore accounts but who had not declared such accounts as is required. Through the program, taxpayers would pay much less penalties to get into compliance. This was the second of such programs with the first OVDI having run in 2009. The 2011 OVDI was quite a success, having raised $2.7 billion. Furthermore, more taxpayers are now paying taxes on foreign income following the disclosure.

6. Government Deficit Politics

Finally, another major tax event for 2011 was the negotiations on Capitol Hill that sort to resolve a large government deficit. In 2011, President Obama set a bipartisan team of politicians to come up with a strategy to meet the deficit amidst deadlines for this deficit. Though the talks have yielded some progress in terms of meeting the deficit, such progress is slow owing to the differences of the political sides.

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IRS Officially Opens the 2012 Tax Season

February 27, 2012 By

The IRS officially announced the opening of the 2012 tax season on January 4, 2012 with a statement on their website. They also announcement that the official tax deadline was extended by 2 days to April 17, 2012, owing to the fact that April 15th is a Sunday and April 16th is Emancipation Day (that is an official holiday for the District of Colombia). The federal law allows the IRS to treat holidays observed in D.C. as it does federal holidays as far as deadlines are concerned. For those filing for an extension, the deadline for such extensions will remain as October 15th. In the opening announcement, the IRS stated that it was anticipating that about 144 million taxpayers would file returns for 2011 and that more taxpayers would file electronically than they did 2011, especially given that the IRS will, in 2012 onwards, not send out tax return forms on mail as it did previously. In 2011, 76% of taxpayers filed using the e-filing system.

What’s New from the IRS in 2012

As they announced the commencement of the tax season, the IRS also took the opportunity to inform the taxpayers of the new services and the improved services that they had for 2012. This was in line with the IRS goal of continually improving the taxpayers’ experience. Some of these services that have been made available to taxpayers in 2012 are:

  • More Information and Easier Navigation on IRS Website – The IRS website continues to remain the main platform through which the tax authority provides services and information to taxpayers. In 2012, the IRS has improved on various features with popular pages having shortcut navigation buttons at the home page. The IRS also stated that it had significantly improved on its quality of content to address more issues raised by taxpayers.
  • Interactive Videos for Help on the IRS website – Another feature added to the IRS website is a section of interactive videos. Now, taxpayers can view these interactive videos to learn how to perform various tax related tasks such as filing electronically.
  • Two Way Video Conferencing in 10 IRS Offices – The IRS has also introduced an e-conferencing services where taxpayers can visit one of 10 pilot IRS offices and chat on a live conference with an assistant. The service is still in a Beta stage.
  • New PTIN for Preparers – In 2012, all tax preparers are now required to have new Preparer Tax Identification Numbers (PTIN) and use these numbers to file their clients’ returns.

Other Tax Preparation Tools and Services Still Available

The IRS has also reminded taxpayers of the other value services that are still available to taxpayers. These include:

  • Free File – Free file is a free tax preparation software that enables taxpayers whose income is below $57,000 for 2011 to prepare their taxes free of charge. These taxpayers have 20 commercial software to choose from to prepare returns and this is all available free of charge. Taxpayers with a higher income that the stipulated cap may pay a fee to prepare their taxes using these software. However, the Free File Forms are available free to all taxpayers.
  • E-filing – Taxpayers are reminded that the e-filing system is on and still the preferred option for the IRS. The IRS continuous to offer incentives such as faster relaying of refunds for those who file electronically in a bid to have more and more taxpayer shift to filing electronically.
  • IRS2Go – In 2011, the IRS also launched a mobile application system, IRS2Go, which is available to mobile smartphone users. The solution enables taxpayers to track their tax refunds with their mobile phones, among other services.
  • Free Tax Preparation Services – The IRS also reminded taxpayers with an income of less than $50,000 a year that they could get free tax preparation services from Volunteer Income Tax Assistance. For senior citizens above the age of 60, they could get free tax preparation services relating to income taxes from Tax Counseling for the Elderly.
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Considerations When Seeking a Tax Preparer

February 23, 2012 By

Most taxpayers in the U.S. prefer to use a tax preparer to file returns. If you are one of these taxpayers, you need to start identifying the professional to handle your taxes in good time before the tax season sets in. There are various factors you should consider when seeking the ideal preparer to handle your taxes. Below are some of these factors:

Skills and Qualifications

One of the considerations when selecting a tax preparer to handle your taxes is skills and qualifications. Find out the skills that a preparer has to handle your taxes. As of 2012, all tax preparers are now required to get Preparer Tax Identification Numbers (PTIN) after registering with the IRS. Your preparer should therefore posses this license to legally prepare your taxes. Besides this, you should consider other qualifications such as CPA certifications or an attorney with tax specialty. There are also other trainings and skills that can qualify one to professionally handle your taxes and you need to review such qualifications.

Experience

The other important consideration is ones experience. Even with the right qualifications, you get to enjoy better quality services if you go for an experienced preparer. There are some issues and procedures of taxes that are better handled from an experience perspective. When it comes to dealing with IRS audits or complicated tax matters, you may also be better placed if you are dealing with a more experienced professional. Therefore, always ask for the years that one has been practicing in the field and the number of clients that he or she has handled over the year.

Availability and Reliability

The availability of a tax preparer is yet another important consideration. There are many preparers who handle too many clients to the extent that they cannot provide you with quality services. You should weary of such preparers. Try and get a tax preparer who has time for you and who is able to give you personalized service. He or she should be able to give you tax advice as he or she prepares the taxes. You can tell the availability of the preparer by the amount of time that one is willing to spend with you and how often one gets to communicate with you proactively.

What Returns they Handle

Another important consideration is the type of taxes that the preparer handles. There are tax preparers who only handle Federal taxes and do not handle State and local taxes. There are yet other preparers who only handle issues of negotiations with the IRS when it comes to installment taxes or Offer in Compromises. You therefore, need to ascertain the scope of taxes handled by a preparer so as to know whether he or she can handle all of your tax needs.

Terms of Service

You should also review the terms of service that a preparer gives you for his or her services. Some tax preparers undertake to handle any IRS audits should one arise from returns that he or she has prepared on your behalf. Others will not handle audits or will handle such audits as an extra paid service. There are preparers who provide tax refunds in advance.

Fees

Different tax preparers will charge different fees for their services. You therefore, need to review the charges levied and the terms of payment. You should be weary of tax preparers who request a commission based on the amount of refund they are able to get you as most of such preparers use unorthodox and illegal ways of inflating your refunds. You should also be careful of preparers who insist on receiving refunds on your behalf.

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Tax Preparer Compliance Update and Related TIGTA Report

February 16, 2012 By

The IRS introduced new tax preparer rules that came to effect in January 2012. The rules have been put in place to increase surveillance and ensure professionalism in the tax preparer industry. All tax preparers are now required to apply for a Preparer Tax Identification Number (PTIN) license. This license is to be renewed every tax year. For professionals including CPAs and attorneys, getting the PTIN will be automatic as long as there are no outstanding issues with the IRS. For the other tax preparers, they will be required to sit for an exam to evaluate their ethics and their competence in handling taxes. Besides this competence test, these preparers will also be required to undertake a 15 hours tax training every year before renewing their license. 

12% Yet to Comply

According to the rules that were introduced in 2011, every tax preparer who sort to practice in 2012 and who is not a qualifying professional needed to have sat for the competence test by December 31st of 2011. As of this date, 12.5% of preparers were yet to comply. This means that in 2012, there will be less preparers available to assist taxpayers with their returns.

TIGTA Report Reveal Felons and Prisoners Received PTINs

An audit by the Treasury Inspector General for Tax Administration (TIGTA) revealed that there were some anomalies about the preparers who managed to register in time for the 2012 tax year. According to the audit report, there were 962 prepare who had received the PTIN license but who had been imprisoned in the last 10 years. A vast majority of these people did not disclose their felony convictions. Furthermore, to add the proverbial insult to injury, about 320 of these prepares were actually serving a sentence at the time of application. In fact, 43 of them were actually serving life sentences!

The issue of having convicts as prepares is especially serious as there have been quite a number of tax return frauds that have been done from prisons in the past. In response to these frauds, the IRS had committed to keep those in prisons from having preparer licenses.

Rules did not Prohibit Prisoners from PTINs

Having prisoners and people who had recent felony convictions being licensed with the PTIN license may not have been entirely an oversight on the part of the IRS. This is because the rules of application for preparers did not require one not to be a prisoner. This means that the preparers actually held the licenses legally.

IRS Commits to Increase Vetting of Preparers

Following the TIGTA audit report, the IRS has adjusted its tax preparer rules and from beginning of 2012, no person who is serving a jail term will be permitted to be a preparer. This means that all the 320 convicts will have their licenses suspended. The IRS has also committed to ensure that no person with an IRS criminal record gets a PTIN license.

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New Competence Test for Tax Preparers Announced by the IRS

December 6, 2011 By


In an effort to enhance oversight of the tax preparation industry, the Internal Revenue Services (IRS) recently released the new stipulations for the competency test. This is a test that prequalifies one as a Registered Tax Return Preparer.
Tax preparers, who will successfully sail through the test, a tax compliance check and background scrutiny as well as 15 hours of continuing education will now earn the title of a Registered Tax Returns Preparer.

The test covers seven major categories and 78 specific topics. The categories will be: preliminary work and collection of taxpayer data, other taxes, ethics, completion of the filing process, deduction and credits, and treatment of income and assets.

Holders of the Provisional Taxpayer Identification Number (PTIN) issued by the IRS have up to December 31, 2013 to pass the exam. Furthermore, they can sit for the test at any time, as soon as it is made available.

The test vendor, Prometric Inc., working together with the IRS as well as the tax prepaeres community came up with the test that is made up of 120 questions. The questions are a fusion of multiple choice and true/false formats. Individuals who will sit for the test will either be awarded a fail or pass score. Those who fail the test will be provided with a diagnostic feedback.

Candidates will be allowed to use some reference materials while taking the test which is expected to last between two and three hours. The reference materials will be Form 1040 plus its instructions and Publication 17. The test will be taken in one of the 260 prometric facilities nationwide.

The test fee will differ from the PTIN user feed, although the precise charges are yet to be finalized (but it is estimated to cost between $100 and $125). There are no limitations to the number of attempts an individual can take; however, you need to pay the test fee before each attempt. You just have to pass the test once.

There are some exemptions on the targeted test takers. Only those folks involved in the preparation of Form 1040 are required to take the test. Because of the rigorous training and strict professional testing and educational requirements related to their licenses, attorneys, Enrolled Agents (EAs), and Certified Public Accountants (CPAs) are exempted. Also exempted are attorneys, CPAs and EAs who only prepare but don’t sign and are not required to sign the Form 1040 series returns they prepare. Also, those who not only prepare the Form 1040 series but also prepare federal returns are exempt.

An estimated 62% of the 730,000 returns preparers that registered and received PTINS in 2011 lack professional credentials.
Currently, the IRS doesn’t have the exact figures of the preparers targeted for exemptions. They were required to identify themselves when renewing their current PTIN or obtain a new PTIN which had been slated for October 2011. The IRS will notify those targeted for the test and avail further details.

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