Important Considerations as You Select Your Return Preparer This Filing Season
March 5 –
With the filing season underway, many taxpayers are gathering their tax documents, including Forms W-2 and 1099, and figuring out exactly how they will prepare their income tax returns. Some taxpayers choose to prepare their own tax returns using tax return preparation software. However, last year, over 54 percent of all individual income tax returns were prepared by paid return preparers. Choosing the right return preparer is an important decision with significant financial consequences, but selecting the right return preparer can be confusing. It may be difficult to understand the differences between the various preparer credentials and which type of credential best fits your needs.
Basic Considerations as You Select Your Return Preparer
Before you start your search for a return preparer, consider:
Volunteer or Paid Return Preparation. You may be eligible to obtain free tax return preparation services through one of the IRS partners participating in the Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) programs. VITA sites offer free tax preparation services to individual taxpayers who make $64,000 or less, persons with disabilities, and taxpayers with limited English proficiency. TCE sites offer free tax preparation assistance to taxpayers who are 60 years of age and older and often specialize in tax issues unique to seniors, such as pension and retirement-related issues. You can find out more about the volunteer programs, determine your eligibility, and even find a VITA or TCE site here.
Different Types of Return Preparer Credentials. There are many different types of return preparer credentials:
Attorney;
Certified public accountant (CPA);
Enrolled agent;
Enrolled actuary;
Enrolled retirement plan agent; and
Annual Filing Season Program participant.
The IRS provides a basic explanation of the various types of credentials to provide taxpayers a high level overview of the options.
How to Locate a Credentialed Preparer. If you are interested in finding a credentialed federal tax return preparer, there is a directory available on the IRS website.
Credentialed Preparers are Subject to Regulations Governing Practice Before the IRS. Circular 230 provides regulations governing practice before the IRS by attorneys, CPAs, enrolled agents, and others who are subject to IRS oversight. For example, Circular 230 requires credentialed preparers to exercise due diligence to accurately prepare tax returns, prohibits them from charging unconscionable fees, imposes restrictions to prevent fraudulent advertising, subjects them to tax preparation standards, and requires them to possess the appropriate level of knowledge and skill to perform the preparation services. Each of the different credentials have minimum competency standards and credentialed preparers are required to adhere to the practice obligations under Circular 230.
Non-credentialed Return Preparers. Non-credentialed return preparers are those who do not possess one of the above credentials. They are not required to have any training in tax law and are not subject to Circular 230, but they must still have a valid 2024 preparer tax identification number (PTIN) to prepare your return. A PTIN is a number issued by the IRS to paid federal tax return preparers. It is used as the tax return preparer’s identification number and, when applicable, must be placed in the “Paid Preparer Use Only” section of a tax return that the return preparer prepared for compensation.
Representation Authority. After a return is prepared and filed with the IRS, you may need the return preparer to assist in addressing any questions subsequently raised by the IRS. Aside from various testing and education requirement differences of each credential, it is important to note that not all return preparers have the authority to perform other tax-return-related functions after preparing and filing your return. For example,
Attorneys, CPAs, enrolled agents, enrolled actuaries, and enrolled retirement plan agents can represent you before the IRS as long as you have granted them the authority to do so by filing a valid Form 2848, Power of Attorney and Declaration of Representative.
Annual Filing Season Program participants have limited representation rights, which means they can only represent you before an IRS revenue agent, customer service representative, or Taxpayer Advocate Service employee regarding an audit of a return they prepared, if you have granted them such authority by filing a valid Form 2848.
Non-credentialed return preparers have no representation authority and are only authorized to prepare your tax return, assuming they have a valid 2024 PTIN.
Protect Yourself From Unscrupulous Preparers
While most return preparers are dedicated to preparing accurate returns, unfortunately there exists a population of unscrupulous preparers who do not promote your best interests. In fact, they can cause serious financial harm to you if you are not careful. You can protect yourself from becoming a victim of dishonest or incompetent preparers by taking a few simple steps:
Only go to a return preparer with an established place of business.
Check the Better Business Bureau website for information about the return preparer.
Do not trust a return preparer promising “too good to be true” larger refunds and make sure that the return preparer prepares the return based on your tax records.
Beware of a return preparer who bases the preparation fee on the size of your tax refund.
Beware of a return preparer who offers to direct deposit all or part of your tax refund into their own financial accounts.
Review your prepared tax return and question items of income, deductions, or credits you do not understand.
Never sign a blank or incomplete tax return.
Make sure your preparer signs, enters a PTIN, and completes all the fields for the preparer’s business information in the “Paid Preparer Use Only” section at the bottom of your return.
Obtain a copy of your completed tax return, signed by both you and your return preparer.
Reporting a Return Preparer
Your choices have consequences, and you should be comfortable with the person you choose to prepare and file your tax returns. However, if you are unfortunate and find yourself the victim of return preparer fraud or misconduct, you should complete and submit IRS Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit. The instructions include detailed information on the documents you will need to attach to corroborate your information. The instructions also include mailing instructions, which differ depending on how you learned of the fraud or misconduct.
Legislative Recommendation to Impose Minimum Standards on Paid Federal Return Preparers
I have proposed a legislative recommendation to authorize Treasury and the IRS to impose minimum competency standards on paid federal tax return preparers to protect taxpayers. Many paid tax return preparers are non-credentialed. Some have no training or experience at all. Taxpayers are harmed when incompetent tax return preparers make errors that cause them to pay too much tax, deprive them of receiving certain tax benefits, or subject them to IRS tax adjustments and penalties for understating their tax. In my 2023 Annual Report to Congress, I named the lack of return preparer minimum standards as one of the top ten problems faced by taxpayers. IRS data suggests that a significant portion of improper payments was attributable to tax returns prepared by non-credentialed return preparers. More specifically, among returns claiming the Earned Income Tax Credit (EITC) prepared by paid tax return preparers in tax year 2021, non-credentialed preparers prepared 79 percent, and the returns they prepared accounted for 94 percent of the total dollar amount of EITC audit adjustments made on prepared returns. Requiring that tax return preparers demonstrate competence and obtain continuing education is arguably the simplest and most effective step Congress can take to protect taxpayers, improve return accuracy, and reduce improper payments.
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