Posts Tagged ‘Selection of a tax preparer’

Important Facts to Consider BEFORE You Choose A Tax Preparer

Tuesday, January 10th, 2012

The exclusive purpose for the information which is provided from this website is to disseminate  information, and not to provide tax advice.

Based on your own personal experiences or the experiences of those whom you know, everyone who is reading this article will have a different opinion on its importance and relevance.  I would like to stipulate that its importance is much higher today than it was three to five years ago but not as high as it will be three to five years from now.  There are several key factors which support this statement:

  1. The budget deficit for our Nation is at a record high level, at an amount so large that is historically unprecedented;
  2. To partially drive down this deficit to levels considered acceptable by the electorate, there is an urgent need for tax revenues, the greatest majority of which are provided by individual taxpayers;
  3. Advances in technology are providing the taxing authorities with greater opportunities to identify and collect  this revenue;
  4. The complexity of the existing tax laws has tended to increase over time which has simultaneously increased the challenges for all taxpayers in understanding the myriad of tax laws, interpreting them correctly, and filing accurate income tax returns;
  5. Not only are the current accuracy standards for taxpayers and tax return preparers at an all-time high, but they are expected to continue to increase throughout the foreseeable future.

Presently, you have two options: 1) prepare all of your tax returns yourself, or 2) engage the professional services of someone else to prepare your tax returns for you.  This is an extremely important decision.  Regardless of your decision, you remain legally and financially responsible for all of your tax return information and data.  In January 2011 I published two closely related articles on this subject at this website:

Clicking on the above hyperlinks will permit you to access either or both articles.  There is additional, relevant information for you in this article today.  However naive it may have been at the time, as a very young CPA I assumed (??) that all, or even most,  CPAs within my profession continuously strive to achieve, maintain, and uphold the highest standards for their integrity, technical knowledge, client communications, and client satisfaction.  My own actual experiences have demonstrated to me that this assumption is not always correct.  If you choose to engage the services of either a tax preparer, CPA, or tax attorney, I am recommending that you consider all of the information in all of these articles in your decision-making process, and that you continuously evaluate your tax professional throughout every aspect of your tax engagement.  If there is ever an instance of dissatisfaction, immediately inform the tax professional, or obtain the services of another tax practitioner.

Additional “qualitative factors” which you should use in making your decision, include, but are not limited to:

  1. Open Cummunications -  are you always accorded dignity and respect by your tax professional? Is there continuous dialogue between both of you?  Are you always kept abreast of the important aspects of your tax returns and tax situation, including the key provisions of pending and new tax laws?  Does your tax professional communicate with you in terms and concepts which you easily understand and for which you can subsequently conclude yourself is the best or most appropriate response?  Does your tax professional continuously discuss with you opportunities to reduce your tax liability?  Does she or he explain opportunities for you to benefit from existing or anticipated changes in the tax laws?
  2. Responsiveness –   does your tax professional always promptly respond to your inquiries, questions, and concerns especially correspondence which you receive from any taxing authority?
  3. Accessibility – is your tax professional always reasonably accessible to you following a telephone call, e-mail, written correspondence, etc?
  4. Engagement Letter – does your tax professional provide you with a document, which is easily understandable by both of you, which sets forth all of yours and his or her responsibilities, including important provisions, tasks, dates, deadlines, fees and costs, etc?  Is it signed and dated by all parties?
  5. Documentation –  does your tax professional respond to all of your questions regarding the data and information in your tax returns with an explanation of all supporting statements and schedules, if needed by you?  Are you provided with a complete hard or soft “as filed” copy of your tax returns for your records?  Are ALL of your original tax records returned to you?  If you are a business owner, does your tax professional provide you with an explanation between the amount in your financial statements (Balance Sheet, Profit and Loss, General Ledger etc) and the data submitted in your tax return?  Does the tax professional provide you with all of the required accounting adjusting entries that are required for your business?  Is the fee for his or her services appropriate under the circumstances and acceptable to you, including the fee payment schedule?
  6. Warranty – your tax preparer or tax professional should always stand behind (warrant) the accuracy and completeness of the tax returns which he or she prepares for you.  If the taxing authorities subsequently determine that there are errors or defects, unless it is due to misttatements of fact on your part, there should not be any additional costs to you for the preparation and filing of amended tax returns.  If there is a stipulation to the contrary, it should be clearly set forth and stated in the “Engagement Letter” which is described above.

There is addtional information on this subject from the Internal Revenue Service:  (more…)

Should I Continue To Use Tax Software or Should I Contact A CPA????

Thursday, January 13th, 2011

Are you now in this situation?  I’ve been using   ______________  (fill in the name of your tax software) for several years and I am  considering engaging a CPA to prepare my tax returns each year.   Why should I engage the services of a CPA?  What facts should I consider in making this decision?

 □       Education – CPAs are required to complete a rigorous academic program before becoming qualified to sit for the CPA exam.  Most states now have a 150 semester hour requirement.  Therefore, your CPA probably has at least a Master’s degree.

 □       Certification – after completing the academic program all CPAs must successfully pass all four parts of a very demanding 20-hour professional exam.  This exam has been described as being on par with, or even tougher,  than the attorneys state bar exam.  After the completion of the exam the CPA candidate must petition the state board of public accountancy for certification.  The certification process includes a thorough criminal background investigation and a detailed review of all of the candidate’s academic and professional qualifications.  Most states require that the candidate have at least two years of experience in actual practice, one year of which can be satisfied if the candidate has a Master’s degree.

 □       Regulation – after being licensed to practice by the state board the CPA is required to continuously maintain the highest standards of professional ethics.  The academic requirements never end.  Every CPA is required to complete at least 120 hours of Continuing Professional Education (CPE) every three years and must be recertified by the state board of accounting every 1-2 years, depending on the state.  Additionally, certain CPAs who perform the attest function are required to have their practice operations reviewed by another CPA firm (Peer Review) every three years.  The results are sent to the state board of accounting.  If your CPA is a tax preparer he/she is also regulated and monitored by the Internal Revenue Service plus the state and local taxing authorities. Effective in October 2010, CPAs now are required to obtain and annually renew their Prepare Tax Identification Number (PTIN).  This number must appear on all of the tax returns that they prepare.

 □       Experience – your CPA will have spent years in developing and acquiring a wealth of technical knowledge to continuously ensure that the depth and breadth of his knowledge exceeds the demands of his/her clients. The demands of public practice are so demanding that many will specialize in the services that they offer (i.e. tax, audit, management consulting) just as their colleagues in medicine and the law have done.

 Your CPA will be prepared to review all of your financial records and files to determine the requirements for compliance with the appropriate tax laws, plus where opportunities exist to minimize your tax liability.  In a complex situation,  tax research will be required by the CPA  to determine the requirements that must be fulfilled prior to taking a specific tax position on your behalf. This includes knowing the required written documentation for each deduction or expense. He/she understands all of your rights under the law and will also be prepared to assist or represent you if any of your tax returns are audited. 

 Your CPA is also an “advisor” who can assist you in the management of your financial affairs, tax and estate planning, some legal assistance, starting a new business, improving the financial performance of an existing business, etc.

Finally, I use the following criteria when discussing this situation with any new client:

1.  If you understand all of the relevant tax law provisions and requirements for preparing your tax return using tax software, you should continue to prepare your own tax return;

2.  If there are unique requirements for the past tax year and you just need to have a few questions answered, contact me and I’ll answer your questions.  There are usually no charges unless more than 2-3 hours of my time will be required;

3.  For whatever the reasons, if I can assist you in the preparation of your tax returns each year I’d like to discuss the opportunity with you.  My goal every year is to save you more in income taxes, based upon my knowledge of the tax laws, than the fee that I am charging you for the preparation of your tax return.

Additional information on this subject from the Internal Revenue Service is presented below: (more…)

Important Tax Preparer Considerations

Monday, January 10th, 2011

A similar article on this same subject  dated January 11, 2010 can be found on this website.  The information provided below is an update of that information and also includes new considerations. 

The selection of a tax preparer is probably one of the most important decisions that any tax payer will make. In terms of importance, it ranks on par with the choice of your family physician, your attorney,  and your financial advisors.  Although the percentages will vary by media source, generally speaking, over 80% of  American taxpayers will obtain some level of  tax return preparation assistance this year.   The existing tax laws that have emerged from the U.S. Congress in the past three decades have caused significant complications in the ability of the American taxpayer to comprehend and interpret the provisions of the tax laws that are applicable in their specific cases.  Simply stated, if you can’t understand the tax laws, don’t be concerned.  There are millions of other Americans who have reached the same conclusion.  Not only is it a formidable task for you, it’s also a challenge for tax preparers.  Remaining abreast of all of these changes/updates has become almost a full-time task for me.  In a nutshell, if you have any doubts whatsoever regarding the accuracy and completeness of your tax return, including all of the data on every line of each form,  I  recommend that you contact a tax professional for assistance.  Potential sources for this assistance include a Certified Public Accountant, a tax attorney (who usually is also a CPA), the Internal Revenue Service ( or 1-(800) 829-1040), a knowledgeable business associate, colleague, or family member, etc.

Additional factors that should be considered include, but are not limited to:

  • An “Engagement Letter” -  a formal, written document that is signed by all of the parties.  This document will include many very important aspects of your relationship and  the work products that are to be provided throughout the “engagement”, especially all of the specific reponsibilities for you and for the tax preparer.  The documents will also include 1) the “scope of the engagement” (what tasks you want the preparer to accomplish and the final work products), 2) deadlines and fee structures including billings and payments, 3) communications with you (e-mail, letter, FAX etc), 4)  timing of the engagement, 5) the costs for additional services including the preparer’s terms and conditions, 6) the preparer’s practices and policies that will be provided for the protection and disclosure of your confidential tax return information.  Most malpractice insurers will not honor claims from a practitioner who does not use “engagement letters.”   
  • Practitioner Tax Identification Numbers (PTIN) – in August 2010 the Internal Revenue Service implemented a new requirement that all tax preparers register with the service, obtain a PTIN, and renew their account annually.  During the annual renewal process the IRS reviews the tax preparer’s history, compliance with all of the appropriate laws, violations, suspensions, etc.  The following is an abstract from The Journal of Accountancy on this subject “All paid tax return preparers, including CPAs, now must use a PTIN when signing all tax returns, forms or claims for refund (except for certain specified returns and forms—see Notice 2011-6), and must have obtained or renewed an existing PTIN to prepare returns after Dec. 31, 2010. In addition, persons who exercise discretion or independent judgment to prepare all or substantially all of a tax return, form or claim for refund (again, apart from certain specified ones) must likewise obtain or renew a PTIN, whether or not they sign the return, form or claim for refund. The PTIN requirement is part of the IRS’ broader effort to establish minimum standards for all paid tax preparers that will eventually include, for preparers who are not CPAs, attorneys or enrolled agents, testing and continuing education.”
  • Qualifications-carefully review the qualications of everyone who provdes any tax assistance to you.  This includes references, qualifications, experience, certifications, etc.
  • E-file-the technology is here now.  Use it to your advantage.  You will also receive your tax refund sooner, even if you don’t use direct deposit.  Welcome to the 21st century!
  • Communications and accessibility – obtain an agreement with your tax preparer during your initial meeting regarding the best method to communicate with you (Tweet, e-mail, cell phone, text message, FAX, “snail mail” etc), the best time to do so, and the responsiveness “standard” for all of your inquiries, dialogue, and communications.  A “24-48 hour turnaround” is an excellent standard to follow. In the past 32 years, one of the top complaints that new clients share with me is the failure of their tax preparer to communicate with them in a timely manner;
  • Your Tax Records-all of these documents are considered to be owned by you.  Your tax preparer should make copies for his/her files and promptly return your records to you, even if there are on-going disputes between the parties;     
  •  Even though you have someone else prepare your tax return, you remain fully liable for the accruracy, completeness, and timely filing  of your tax return;

 The IRS has just recently provided eight tips that are also beneficial in the decision-making process;    Here are the the IRS recommendations: (more…)

Eight Tips to Help You Choose a Tax Preparer

Monday, January 11th, 2010

The selection of a tax preparer is probably one of the most important decisions that any tax payer will make.  I recently read an article that stated that over 80% of Americans will obtain some level of  tax return preparation assistance.  As I review the plethora of tax law changes that have emerged in 2008-2009  from both the U.S. Congress and President Obama’s administration it is obvious to me that the comprehension and interpretation of all of these changes is a monumental, formidable task not just for tax payers, but also for tax preparers.  Remaining abreast of all of these changes/updates has become a full-time task for me.  In a nutshell, unless you have a very simple, uncomplicated tax return, I  recommend that you do not prepare your own tax return without some level of assistance from a professional tax preparer.

Your tax preparer is also just as important as the person whom you select for your legal affairs (attorney) and your investments (financial advisor).  I continue to believe  that the choice is equally as important as choosing  your family physician.  Additionally, the Internal Revenue Service is now implementing new, higher standards for  anyone who prepares a tax return for someone else.  These policies  will mandate that any tax preparer must first attain, and then continue to maintain, his or her compliance with many stringent professional standards.

The IRS has just recently provided eight tips that are beneficial in the decision-making process.  I would like to add a very important  ninth tip – do not allow any one to prepare your tax return unless they provide you with a formal, written “engagement letter” that has been signed by everyone.  This document will include many very important aspects of your relationship (the “engagement”), especially all of the separate, specific reponsibilities for you and the tax preparer.  Even though you have someone else prepare your tax return, you remain fully liable for the accruracy, completeness, and timely filing  of your tax return.   Here are the the IRS recommendations: (more…)