March 2017 JD Supra
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As we approach this year’s tax filing deadline of April 18th, do you think that you have your Tax Return and tax preparation under control?  Before you answer yes, take the time to examine and evaluate who is preparing your taxes.  Do they have the knowledge and credentials to effectively and accurately represent you?

In view of a complicated US tax system, identity theft crisis and cyber-attacks, tax preparers should have IRS tax preparation recognized credentials.   IRS states that “each year, some taxpayers are hurt financially because they choose the wrong tax return preparer”.

Individual Taxpayers often think of preparing and filing Tax Returns as an area where they want to save money.  With Tax Returns and FBARs coming due on April 18th, there is plenty of advertising from tax preparers offering to do Tax Returns at a low cost.  Tax return preparation has become perceived as a commodity.  It is not a commodity.

The tax industry is changing constantly.   IRS modified its regulations for tax preparers because for years, tax preparation services have been unregulated.  IRS now has a Directory where Taxpayers can research Tax Return preparers to determine the type of credentials or qualifications held by a specific tax professional.  The directory contains those with a PTIN (Paid Preparer Tax Identification Number)   who hold a professional credential or have obtained an Annual Filing Season Program Record of Completion from the IRS:   All Tax Return preparers must have a PTIN.  The PTIN is an identification number that all paid Tax Return Preparers must use on US federal Tax Returns or claims for a refund submitted to IRS.  A PTIN is required for a Tax Return preparer to sign any Tax Return or to represent a Taxpayer before the IRS in any capacity. CPAs and Attorneys have unlimited practice rights before the IRS.

The area of tax preparation is one where Taxpayers ought not to go with the lowest cost provider or use web-based software.   There is a lot at stake when submitting your tax return, including your signature under penalty of perjury.  There is financial planning, advice and a specific skill set that is required for the proper preparation of a tax return that a CPA or an Attorney (only those that specialize in tax preparation and planning) can achieve. The specialty of a CPA is needed when the Taxpayer:

  • Owns real estate an or rental property
  • Owns investments
  • Owns a business
  • Has foreign investments
  • Has foreign bank accounts
  • Has an inheritance
  • Has a life changing event
  • Has multiple sources of income
  • Takes alimony deductions
  • Claims rental losses
  • Has travel and entertainment deductions
  • Makes a lot of income
  • Has failed to report all taxable income
  • Claims business use of a vehicle
  • Claims higher than average deductions
  • Takes an early distribution from a 401(k) plan or IRA
  • Claims home as an office deduction
  • Claims big losses
  • Fails to report winnings
  • Takes high charitable deductions
  • Is living abroad

Taxpayers should not be victims of their own making and ought to avoid tax preparers that are just dropping numbers on a web-based software system.   CPAs deal with tax code and law every day and understand deductions and tax minimization strategies. CPAs can represent Taxpayers in front of the IRS; which is more important than ever given the rise of IRS compliance programs and automated tracking systems.