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.Â
 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:
If you pay someone to prepare your tax return, choose that preparer wisely. Taxpayers are legally responsible for what’s on their own tax returns even if prepared by someone else. So, it is important to choose carefully when hiring an individual or firm to prepare personal returns. Most return preparers are professional, honest and provide excellent service to their clients. Here are a few points to keep in mind when someone else prepares your return:
- A Paid Preparer is required by law to sign the return and fill in the preparer areas of the form. The preparer should also include their appropriate identifying number on the return. Although the Preparer signs the return, you are responsible for the accuracy of every item on your return. In addition, the preparer must give you a copy of the return.
- Review the completed return to ensure all tax information, your name, address and Social Security number(s) are correct. Make sure that none of these spaces is left blank.
- Review and ensure you understand the entries and are comfortable with the accuracy of the return before you sign.
- Never sign a blank return, and never sign in pencil.
- If you have provided specific authorization in a power of attorney filed with the IRS, you may have copies of notices or refund checks mailed to your preparer or representative; but only you can sign and cash your refund check. For further information on Powers of Attorney, refer to Topic 311.
- A Third Party Authorization Check Box on Form 1040 allows you to designate your Paid Preparer to speak to the IRS concerning how your return was prepared, payment and refund issues and mathematical errors.
It’s important for taxpayers to find qualified tax professionals if they need help preparing and filing their tax returns. Unqualified tax preparers may overlook legitimate deductions or credits that could cause clients to pay more tax than they should. Unqualified preparers may also make costly mistakes causing their clients to incur assessed deficiencies, penalties, and interest. Here are some suggestions to consider when hiring a tax professional:
- A paid preparer must sign the return as required by law.
- Avoid preparers who claim they can obtain larger refunds than other preparers. If your returns are prepared correctly, every preparer should derive substantially similar numbers.
- Beware of a preparer who guarantees results or who bases fees on a percentage of the amount of the refund. A practitioner may not charge a contingent fee (percentage of your refund) for preparing an original tax return.
- Understand that the most reputable preparers will request to see your receipts and will ask you multiple questions to determine your qualifications for expenses, deductions and other items. By doing so they have your best interest in mind and are trying to help you avoid penalties, interest or additional taxes that could result from an IRS examination.
- Choose a preparer you will be able to contact and one who will be responsive to your needs. Ask who will actually prepare the return before engaging services. Avoid firms where your work may be delegated down to someone with less training or some unknown worker. You should know exactly who works with your tax matters at all times and how to contact him or her; after all, you are paying for it. Determine if the preparer is exporting your return to a foreign country for preparation. Foreign countries do not have the same security and privacy laws as the United States nor is there any recourse should your information be compromised as a result of lax or nonexistent privacy procedures.
- Investigate whether the preparer has any questionable history with the Better Business Bureau, the state’s board of accountancy for CPAs, the state’s bar association for attorneys or the IRS Office of Professional Responsibility (OPR) for enrolled agents or the oversight agency in states that license or register tax preparers.
- Determine if the preparer’s credentials meet your needs or if your state mandates licensing or registration requirements for paid preparers. As of 2008, California and Oregon are the only two states that regulate paid tax preparers. Is he or she an Enrolled Agent, Certified Public Accountant (CPA) or Tax Attorney? Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters including audits, collection actions and appeals. Other return preparers may represent taxpayers only in audits regarding a return that they signed as a preparer.
- Find out if the preparer is affiliated with a professional organization that provides or requires its members to pursue continuing education and holds them accountable to a code of ethics.
- Check IRS.gov for information regarding abusive shelters and other tax schemes and scams. Remember, if it sounds too good to be true, chances are it is.
- The IRS can help many taxpayers prepare their own returns without the assistance of a paid preparer. Before seeking a paid preparer, taxpayers might consider how much information is available directly from the IRS through the IRS Web site. Check out these helpful links:
Unfortunately, unscrupulous tax return preparers do exist and can cause considerable financial and legal problems for their clients. Examples of improper actions by unscrupulous preparers include the preparation and filing of false paper or electronic income tax returns that claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions.
Tax evasion is both risky and a crime, punishable by up to five years imprisonment and a $250,000 fine. Remember, no matter who prepares a tax return, the taxpayer is legally responsible for all of the information on that tax return.
Report suspected tax fraud and abusive return preparers by completing Form 3949-A and mailing it or a letter with similar information to:
Internal Revenue Service
Fresno, CA 93888
Related Links:
Tax Return Preparer Fraud
Choosing a Tax Preparer Video