Each year, millions of people enlist the aid of a tax return preparer to prepare and file their income tax returns. It is important to know that tax return preparers have differing levels of skills, education, and expertise. For example, there are certified public accountants, enrolled agents, attorneys, and many others who do not have a professional credential. More importantly, be aware that federal law allows for ANYONE to be a tax return preparer so long as they have a valid Preparer Tax Identification Number (PTIN). And tax return preparer fraud is among the IRS's list of common tax scams.
So, if you choose to pay someone to prepare your taxes, be sure to carefully check your preparer's credentials because the law ultimately holds YOU responsible for the accuracy of your tax return. The following hypothetical illustrates this point.
Hypothetical: A Cautionary Tale
It's March 31, 2019 and you have 15 days left to file your taxes (April 15th being the deadline). You contact your local tax guy or gal because you do not want to be bothered with preparing your own taxes—a relatively easy and free option for most taxpayers under the IRS Free File program. You visit the tax preparation store and bring all the documents required to prepare and file your taxes. The entire process takes about an hour and the preparer tells you that you'll be receiving a tax refund of $3,500 (yay!)—you normally receive about $400. Unbeknownst to you, however, the preparer reported several inaccurate or fraudulent items on your taxes to boost your refund amount. For example, the preparer reported that you attended college and paid $4,000 for tuition, which in fact you did not. And the preparer reported that you donated $15,000 in cash to local charities, but you actually donated about $250 to your church.
The IRS flags your return because it has no record of a Form 1098-T for you (note, colleges must generally file a Form 1098-T with the IRS for each enrolled student that pays tuition). The IRS also flags the substantial cash donation amount reported on your return as suspicious given that your reported income was $50,000 in 2018. Upon further review, the IRS determines that you were not entitled to claim the education credit or the charitable deduction reported on your return. Well, you paid the preparer to accurately prepare your taxes so you should be fine right? Wrong. Even though you had no idea the preparer falsely claimed an education credit or a charitable donation deduction on your return, the law ultimately holds you responsible for paying back any taxes, interest, or penalties owed in connection with the error. Remember, when you sign your tax return—even if the preparer does not thoroughly review the return with you—you are attesting to the accuracy of the items reported on the return, under penalties of perjury.
So, if you decide to pay someone to do your taxes, be sure to carefully vet their credentials. The IRS's Return Preparer Directory is a valuable resource that can assist you in reviewing a tax return preparer's credentials. Also, review our article on Red Flags and Deceptive Practices—where we discuss some of the red flags to be mindful of when selecting a paid preparer.
Alternatively, consider preparing your own taxes under the IRS Free File program—a safe, easy, and convenient way for most individuals to prepare their taxes for FREE! Learn more about the Free File program by visiting of informational page at MyTaxRights.org/free-file.
About the Author
Attorney Jordan D. Howlette is the President of MyTaxRights, LLC and the managing-member of JD Howlette Law, LLC, a civil litigation firm that represents individuals and businesses involved in tax disputes with the IRS, the United States Department of Justice (DOJ), and various state departments of revenue. A former trial attorney with the DOJ’s Tax Division, Jordan leverages his extensive background in tax litigation to educate others about their federal tax rights and responsibilities. Each tax season, Jordan also volunteers as a tax coach with the Center for the Advancement of Tax Equity, where he teaches others how to self-prepare and file their taxes through the non-profit's free tax clinics.