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Is your tax preparer qualified? 6 things you should know

February 28, 2011

| MoneyRates.com Senior Financial Analyst, CFA

Before you think about how qualified your tax preparer is, think about what's riding on your tax return.

On the upside, good tax advice can save you hundreds, or possibly thousands, of dollars in tax liability. On the downside, tax evasion is punishable by up to five years in prison and a $250,000 fine, and you are responsible for your tax return, regardless of how you file your taxes or who prepares it.

As you can see, the qualifications of your tax preparer can matter a great deal. Hardly any states license tax preparers, so it most likely it will be up to you to determine whether your tax preparer is properly qualified. Here are six things you should know before hiring a professional tax preparer:

  1. What are the preparer's professional qualifications? According to the Bureau of Labor Statistics, most tax preparers don't even have a bachelor's degree. However, only a CPA, Enrolled Agent (a federally-authorized tax practitioner), or attorney can represent you in front of the IRS in an audit or other proceedings, so looking for a higher level of professional qualification might be worthwhile.
  2. Is this a full-time occupation? Tax work is somewhat seasonal, but changes to the tax code and case law can happen throughout the year. You don't want your tax preparer to miss valuable income tax-deductions because they're not up to speed on recent changes.  Also, your questions or inquiries from the IRS can occur at any time, so you might be better off with a full-time tax specialist.
  3. What type of firm is it? Good tax preparers can be found in anything from sole practitioners to multi-national accounting firms. There are trade-offs to each one. With a major accounting firm you get a widely-known reputation and deep resources, but you'll probably pay more for a big-name firm. A smaller firm may be more personal and less expensive, but have less resources to put into the preparation of your return and backing you up if the IRS calls.
  4. Will the work be delegated down to someone else? Is the person you meet face-to-face preparing your returns, or is this delegated to someone else? If the work is delegated, you want to know something about the process. In particular, the IRS cautions against firms that outsource the work to foreign countries, where privacy laws may not give you as much protection as they do here in the U.S.
  5. What is the preparer's audit history? This is a tricky one. It's good to have a preparer who has some experience with the IRS audit process, but not so much experience to suggest they produce questionable returns. Perhaps the key is to know the outcome of those audits--someone who has had returns stand up under audit may be the ideal choice.
  6. What is the preparer's reputation? Check out anyone you hire with your local Better Business Bureau. If your tax preparer has specific professional credentials, there may be other avenues for checking up on them, such as your state's board of accountancy for CPAs, your state's bar association for attorneys, and the IRS Office of Professional Responsibility for Enrolled Agents.

If your return is prepared by an individual or firm that has had run-ins with the IRS, it might be a red flag drawing special attention to your return, so reputation matters. Tax preparers are easy to find, but it's worth a little extra effort to find one who is properly qualified.

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