If I Had a Nickel for Every Preparer Story

Do not put all your faith and trust in your preparer. He or she is not almighty. They are human and make mistakes, such as forgetting to send their client's return in by the extension date and causing their clients (or rather former clients) to owe even more money when interest and penalties are calculated. If your tax preparer told you that they would mail your return in and you owe money, get written confirmation as to when the return was mailed and tracking number or printout of the e-filing. Remember, if the return doesn't get there, it is ultimately you on the hook, not the preparer.

There was a customer of one of the big three tax preparation services that stated that company did not give her a copy of her return nor return her W2 forms. As previously stated, do not give all or your copies to the preparer. They do not need them and it puts you in a lurch when you really need them and have to wait to obtain them from either your employer or the IRS.

Watch out for tax preparers that promise that your refund will be mailed to you. Instead, these preparers route the money to their accounts, then pretend that they know nothing about what happened. What's more, they become belligerent when questioned about their actions.

If you absolutely must use a paid preparer, make sure that you pay the extra money for the equivalent premium service, which will protect you in case of an IRS audit. However, make sure that it covers you for more than what was reported to the tax preparer. For example, some preparers offer “assurance”, a form of insurance should your return be examined or audited by the IRS and the action results in a tax increase, at an additional cost. Before you commit, ask the following question: Does the assurance cover the tax increase or just the penalty? Most cover the penalty only, which is a far lower amount than the tax. The interest that is charged as a result of the underpayment is not covered.

A preparer return mistake:

A preparer admitted that he made a mistake multitasking returns (preparing several returns simultaneously) in order to maximize income. In so doing, he crossed up one person's bank information with another person's. There appears to be no accountability on the part of the preparer when these situations occur.

Buyer Beware

Customer Alert: Verify the figures from your Form W-2, box one is correct on your federal tax form. There are preparers that are calculating federal tax refunds based on 10% of social security benefits as federal income tax withholding from social security benefits under federal income tax withholding.

Another problem comes in where one owes money to the IRS, is scared based on the previous reputation of the IRS, and avoids the inevitable. They fall prey to various scams, such as those perpetrated by various companies whose ads appear on television and radio. These companies tell unsuspecting clients that they can settle their tax debts for pennies on the dollar. This is true up to a point. There are very stringent criteria in so doing.

A true story from a client who contacted one of these outfits: She states that she was scammed out of $1500, money that she could have used to pay her IRS tax debt. In addition, the customer was promised an OIC, Offer in Compromise, which the customer could have completed the paperwork herself. Her agent never completed the offer.

The customer, in the meantime, got a levy placed on her bank account. One can imagine what the customer was thinking. Big Bad IRS. She wanted to call them. The agent told her not to. Some time later, after the customer went to work for a tax attorney, she asked her boss what she should do to set up a payment plan with the IRS. He simply answered “Call the IRS”. She finally did and found that the agent had not done one thing that he promised to do. They had a Power of Authority (authorization to act for the customer) on file and had not even done the simplest thing that they could have done, which was to contact the IRS and set the customer up on a payment plan. With that call to IRS, she found out how big a scam artist they and other outfits like them that promise miracles but deliver empty promises really are.

Common problems to avoid:

• Do not allow unqualified, unpaid preparers to assist you in preparation and filing of your return.

• Preparers engaging in outright fraud, so egregious such that it just defies common sense to anyone, such as a person claiming a $50,000 refund on $17,000 of net income. IRS has been known to slip up and let such refunds go out in the past, but no more.

Finally, get rid of the fear! Hold your tax professionals accountable for what they do, or don’t do. People get mad at the IRS and the State Department of Revenue for things that are clearly the fault of the preparer. Here are a few examples:

• Tax preparer fails to include income on the return, causing a CP2000 to generate from the IRS, resulting in a balance due. This information is also shared with the state government, which may result in a balance due to them as well.

• Tax preparer not familiar with how to treat certain types of income ends up misreporting the income, resulting in a balance due situation on the income tax return.