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Five Tips for Safely Choosing a Tax Return Preparer

Starting in 2011, the IRS began an aggressive program for regulating those who prepared income tax returns for a fee. Last week, a federal judge ruled that the Internal Revenue Service does not have the authority to regulate those who prepare and file tax returns for others.

Less government regulation is generally better, but it leaves the person who may have a income tax refund due them or someone simply needing to file their federal income tax return a little less sure of who they should choose to file their tax return.

Here are five tips that can help:

  1. Are they qualified? Don't be shy about asking the person offering to prepare your tax return about their qualifications.  The new RTRP designation may go away after the appeals process runs its course, but right now it wouldn't hurt to ask the preparer if they are a Registered Tax Return Preparer.  That means that they have recent 15 hours of Continuing Professional Education, and they have recently set for an exam from the IRS to determine their competency and knowledge of current tax laws.  Tip for free: Just because your accountant is a CPA doesn't necessarily mean he is up on the latest tax laws.  It may not be his area of expertise. Also, many CPA's hire seasonal, minimum wage employees to prepare the tax returns and all the CPA does is sign the return.  Ask questions!
  2. What are their fees? While fees will vary widely based on the type and complexity of the return as well as how one keeps their personal or business records, be sure the tax return service doesn't base their fees on a percentage of your tax refund.  This is a violation of the IRS ethics code. Tip for free: When you watch one ad after another broadcast by a certain tax return service, consider that someone is paying for all of that air time.  Most likely it is those who are paying to have them prepare their returns.  In addition, the franchise firms pay royalty fees of 20-30%, so expect higher prices.
  3. Do they offer e-file services?  The IRS now requires all tax return services who file more than 10 tax returns to e-file those returns. E-file providers (ERO's) go through an extra level of scrutiny by the IRS including finger printing and back ground checks.  Free tip:  If the preparer is unable to e-file your tax return, their may be a question mark in their back ground.
  4. How accessible is your preparer after April 15?  You may have questions raised by the IRS or simply need a copy of your return some time later.  It is important to know that the tax service that you used is accessible year round.
  5. Is the tax service requesting records and receipts?  Reputable tax return services will ask for records and receipts to verify income and deductions. While you are personally responsible for the items that go on your tax return, the preparer is required to verify to the best of his or her's ability, the accuracy of the information.  Free tip: Avoid the tax service claiming they can get you bigger refunds than anyone else!

BTW, Gary Madden, owner of Gary's Local Tax Service is a RTRP with a business administration degree and 18 current hours of CPE.

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