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10 Things Your Tax Preparer Doesn't Want You to Know

By JANET PASKIN

1. "A big name doesn't always mean better service."

Roughly 135 million Americans file tax returns, and of those, two-thirds pay for help. While solo acts like CPAs and so-called enrolled agents have plenty of clients, almost 20% of taxpayers go through a big franchise like H&R Block, Jackson Hewitt or Liberty Tax Service to get their refund last year an average $2,255 per return. Problem is, tax preparation and advice depend on the preparer, and in a system of franchises, that means thousands of seasonal employees and limited quality control.

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The results can be dangerous. When staffers from the Government Accountability Office went undercover to get returns done by the big chains, they found "nearly all of the returns prepared for us were incorrect to some degree," according to the report. Worse yet, recently filed lawsuits allege that the owners of 125 Jackson Hewitt franchises cost the government $70 million in tax fraud and created an environment "in which fraudulent tax-return preparation is encouraged and flourishes," according to the Department of Justice. Jackson Hewitt says it stands behind its compliance procedures as well as its nationally standardized educational curriculum.

2. "You wouldn't believe what I get away with."

Complaints about tax preparers, including allegations of inaccuracies and returns that weren't filed on time, are up 80% in the past five years, says the Council of Better Business Bureaus. But when it comes to the IRS policing problem preparers, "the lifeguard is asleep," complains Sen. Chuck Grassley (R-Iowa), who took the agency to task for inaction last April. (The IRS had no comment.) Less than 1.5% of returns get audited, and while that may pacify nervous taxpayers, audits are the primary way to catch bad tax pros. The GAO found that a year after it reported poor preparers by name to the IRS, the agency had failed to audit a single one.

Professional organizations, like the American Institute of Certified Public Accountants and the National Association of Enrolled Agents, pack even less of a wallop because they often wait for the IRS to act. Then the AICPA will strip membership and report bad accountants to the relevant state-licensing group, says Tom Ochsenschlager, the association's VP of taxation. How to find out if your CPA's been disciplined? Visit the agency's web site at aicpa.org/TheCPALetter.

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3. "You'd be better off without me."

Maybe you're hiring a tax preparer because you've got better things to do with your weekend or numbers make you dizzy more power to you. But if you're hiring a pro because you think he's smarter than you, think again. On average tax preparers make more mistakes, and costlier ones, than Josie Taxpayer does. According to a study of IRS data, 56% of professionally prepared returns showed significant errors, compared with 47% of those done by the taxpayer. And audited taxpayers who used preparers owed an average of $363, while those who filed themselves owed $185.

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Of course, tax preparers often see more-difficult returns, which could lead to more errors. But the bottom line? "For one W-2, mortgage interest and a couple of kids, TurboTax is just fine," says Kerry Kerstetter, an Arkansas CPA. If, on the other hand, you're attaching a schedule for self-employment income or capital losses, consider getting help. And even then, if a return is made complicated by a one-time event -- say, the birth of a child or the acquisition of a rental property -- you might need only one year's worth of advice. "If nothing changes, you should be able to copy it from year to year," says Ochsenschlager.

4. "What are my qualifications? Well, I'm real good at Sudoku."

Every April, Sen. Grassley calls IRS officials before the Finance Committee to grill them on taxpayer protection. He's increasingly concerned about unethical, unlicensed tax preparers and what he calls "sharks in the water." "Anyone can call himself a tax preparer," Grassley laments. Many do. There's no mandatory national licensing, and Oregon and California are the only states that require tax pros to take a test. That means as many as 600,000 tax preparers are unregulated, according to the National Taxpayer Advocate, the taxpayer assistance wing of the IRS. Some may set up shop in a local real estate office, but many work for the big chains: H&R Block alone hires 120,000 people to prepare returns through tax season.

Translation: There's no universal standard for qualification. Licensed preparers, who are usually CPAs or enrolled agents, are tested and must meet ongoing education requirements. Unlicensed preparers do neither. In general that's fine -- no harm, no foul. But in the worst case scenario -- say, a tricky audit -- only a pro with a license (or a lawyer) can represent you before the IRS. At stores like H&R Block, you'll pay extra for representation.

5. "If it's February, you're too late."

A savvy tax pro may be able to cut your tax bill or juice your refund. But don't expect to find one come Feb. 1. From that point through April, tax pros are generally too busy to talk to new clients. So if you don't already have a preparer lined up, by the time you actually have your W-2s in hand, "you're not going to get good service," says Frank Degan, an enrolled agent in Setauket, N.Y. "In the fall, though, tax preparers will give you their full attention." That means you should be talking to tax preparers in October and November. They'll have time to answer questions, look over your old returns and suggest changes.

Not only that, but talking to a tax pro in the fall means you still have time to plan. If you wait until you have all your W-2s, you've locked in all your income for the year. But in the fall a good preparer can help you figure out ways to manipulate your income by increasing your 401(k) contributions, deferring a bonus until the new year or taking taxable losses. Wait until spring and a professional can help you make small decisions, like whether to itemize or think about different deductions, says Bob Scharin, an analyst with Thomson Tax and Accounting, but you've lost most of your flexibility.

· Continued on Page Two

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112 comments

RADIOWIZZZ 09:45:53 PM Mar 25 2008

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If the FairTax was in place... we would save 250 Billion dollars a year! All this paperwork Americans spend money on, wouldn't be necessary! Taxes are necessary... but lets be fair and smart. FairTax.org Take a look.

DHalloway 09:13:47 PM Mar 25 2008

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When it comes to taxes I don't mind paying my fair share. I feel that I live in the greatest country on earth. My taxes are a small price to pay for the security and freedom that my family and I enjoy.Try living in Cuba or Russia or any other country. We have a lot to be thankful for.

Racer 17 08:38:47 PM Mar 25 2008

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The biggest ripoff ,some of the people I know who can't find a job take a quick course and become experts with your money . all claming to get you more than the other guy Find 3 preparers get 3 different amounts .Some lie for you to gain your trust.and the bigger the return the better they are....bull shit It all free on line , the same programs as they use if you are very complex on how you earn your money see a certified CPA TAX PERSON

Mander6712 07:49:56 PM Mar 25 2008

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Being a CPA tax preparer for 30 plus years, it really doesn't matter what type of tax system that we have because there will always be a need for a professional because people by nature will do whatever they can to circumvent the rules and look for preferences-so much for that very humorous "FLAT TAX."

Just Mee Again 06:15:43 PM Mar 25 2008

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I'm not sure when or where the government decided it was okay to take over the American public and OUR money, but I think its time for someone to stand up for us. Whatever happened to "WE THE PEOPLE"???? I for one am so sick and tired of working so hard and being considered poverty level and now I just found out today that I have to PAY to the IRS for taxes. As if they don't get enough already! If I had 4 kids out of wedlock, and mooched off the system, causing everyone else to pay for my food, THEN I would end up making some money at the end of the year. But instead, I choose to work two part time jobs, pay my rent on my OWN without any HELP, buy my OWN FOOD, and my OWN insurance, and because of that I have to pay the IRS. WHAT'S WRONG WITH THIS PICTURE??? WAKE UP YOU SLEEPING AMERICANS, FIGHT BACK, ITS TIME WE TOOK OVER AND MADE THE LAZY, MOOCHERS PAY US, INSTEAD OF THE OTHER WAY AROUND!

Whtglvmaid 02:46:49 PM Mar 25 2008

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I would rather live on a isolated island in the middle of nowhere than be controlled by all of the goverment BS! They have controll over our high interest rates on credit cards., gas, subprime mess (yes, they planned this mess)...etc...etc.. What a joke this country is. Just look at our President!

Ww1621 12:03:37 PM Mar 25 2008

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Where are the socialist saying the "rich" need to pay more, and the people who pay NO taxes should get a refund. Common Liberals, you are slipping.

K4IA 09:01:40 AM Mar 25 2008

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Ten good reasons to reform taxes and get rid of this complicated mess. It is outrageous that our government forces us into a system that is so convoluted, unfair, and incomprehensible that ordinary wage earners have to hire someone to prepare forms so they can get their money back - money that was withheld from their wages and used interest free.

CPACapt 08:50:39 AM Mar 25 2008

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When I did taxes we had an expression, "I never saw a (franchisee) return that I did not have to amend". I have had to the same. Then you see the ads on TV that says (a franchise) will review your prior returns and help you get a refund from what that high priced CPA missed. Yeah, right. If you have a relatively complicated return, go to a CPA firm that does taxes regularly. If you just have a single W-2, the franchise places are OK.
What some franchises will do is have you increase your withholding, so you get a bigger refund. What that allows them to do is offer a Refund Anticipation Loan (RLA) and make more money off the tax payer. An e-filed return will allow you to get your money in 9-14 days anyway, why bother with such a loan.