Is Your Tax Return Preparer Exposing You to Audit Risk?

Don’t be seduced by return preparers who claim they know how to get you fat refunds that other preparers won’t. The IRS is cracking down on unscrupulous and incompetent return preparers, and this could lead to an audit for you if your preparer comes under investigation.

Higher return preparer standards
The IRS is launching a program to get unenrolled tax preparers (those who are not attorneys, CPAs, or enrolled agents) to become registered and complete continuing education. Unenrolled preparers will need to obtain a preparer ID number from the IRS and pay a fee to sign up.

This registration won’t begin until after the summer, but the IRS has already begun to identify preparers of all types who have filed a lot of returns showing incorrect deductions and credits. Of the 10,000 letters that the IRS has already sent to this group of preparers, many arise from mistakes related to income and expenses reported on Schedule C, the form filed by sole proprietors and, in many cases, one-member limited liability companies. While the IRS has not said that the crackdown on preparers will result in more audits on their clients, it would not be unreasonable to think that the returns they’ve prepared will come under greater scrutiny.

Which preparer to use
To make sure your return reflects all the write-offs you’re entitled to but no dubious entries, work only with a tax preparer who will not expose you to unwarranted audits. It is not easy to find out whether a preparer is under investigation; only examples of abusive return preparer investigations are listed. 

The following are IRS suggestions for selecting a preparer:

  1. Be cautious of tax preparers who claim they can obtain larger refunds than other preparers.
  2. Avoid preparers who base their fee on a percentage of the refund.
  3. Use a reputable tax professional who signs the tax return and provides you with a copy.
  4. Consider whether the individual or firm will be around to answer questions about the preparation of the tax return months, or even years, after the return has been filed.
  5. Check the person’s credentials. Only attorneys, certified public accountants (CPAs) and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
  6. Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.
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