[Updated April 2020] The IRS has identified 10,000 tax return preparers who they say make too many errors. Errors that ultimately cost their clients money. The IRS plans to visit approximately 2,500 of those preparers over the next several months.
Many people use professional tax preparers for their returns. Wealthier individuals often use CPAs while folks with relatively simple returns prepare their own return or use a local tax preparation service. Most services do a great job and several chains, like H.R. Block, have a formal training program. Unfortunately, anyone can call themselves a “tax preparer” and prepare returns.
Over the last two years the IRS has begun to regulate the industry. There have been repeated calls for minimum competency standards and annual training on tax law changes. Although requiring training will probably increase the cost for some returns, certified public accountants and many larger preparer services already have excellent training programs in place.
Right now, to become a tax preparer one simply needs to register with the IRS and obtain a PTIN (IRS Preparer Tax Identification Number).
Insuring that paid preparers are competent is important. When a preparer makes an error, the taxpayer is left footing the bill. Some preparers will offer to pay penalties but many do not. Either way, the tax payer is left with an expensive audit to defend, the inconvenience and hassle of providing records and often, an unwelcome bill for additional tax, interest and penalties.
While I always recommend using a CPA or a full time tax accounting firm, I also recognize that there are some great preparers out there who are not accountants. Before you try to save $10 and use the guy who does returns in his kitchen, however, ask what type of training he has and how often he takes refresher courses. (Remember, Congress changes the tax code every year.) Better yet, ask if he or she received one of the 10,000 letters from the IRS. If so, consider a different preparer.
Why Have Your Taxes Prepared by a CPA or Accountant?
The obvious reason is the training accountants and lawyers receive. Accountants have four years of college (7 for lawyers). They also must take a test before they are licensed.
Second, lawyers and accounts can represent you before the IRS if things go wrong. A simple preparer can file your return but represent you before the IRS if audited. (The IRS also allows “Enrolled Agents” who pass an exam to represent taxpayers before the IRS.)
In almost every state, lawyers and CPAs are subject to rigorous annual training requirements. It isn’t enough that an accountant passed an exam when licensed twenty years ago. There are no such annual training requirements for preparers who have a PTIN but nothing else.
Finally. most CPAs and lawyers have malpractice insurance. Anyone can make a mistake. If a mistake happens and you receive penalties assessed by the IRS, you want some assurance that your preparer can pay.
IRS Whistleblower Rewards for Reporting Bad Preparers
The IRS is currently cracking down on bad preparers. They should, they cost the government billions of dollars each year. They also cost their clients billions. Simply because you relied on your preparer’s bad advice doesn’t let you off the hook for what is owed to the IRS.
In 2016, the IRS and Justice Department prosecuted a Brooklyn, New York tax preparer for filing false returns on behalf of clients. Awilda Rosario was sentenced to 36 months in prison following her guilty plea. She owned and operated a tax preparation business called Edujas Multiservices Corporation. Rosario prepared false individual income tax returns that contained false schedules reporting business losses the taxpayers did not incur and attached schedules that reported inflated or phony deductions. She claimed phony fuel tax credits that the taxpayers were not entitled to receive.
It is one thing for a preparer to be sloppy. Some preparers, however, are criminals. They push phony tax schemes or knowingly file false returns. They do this to earn larger fees.
If you have inside information about a preparer knowingly offering phony tax shelters or helping taxpayers evade taxes, you may be eligible for a cash reward.
How much are the rewards? Typically 10% to 30% of whatever the IRS collects from the wrongdoers. Several years ago the IRS paid one whistleblower a $104 million reward! For more information, visit our IRS whistleblower reward page. Ready to see if you qualify for a reward? See our contact information below.
Suing a Tax Preparer for Bad Advice
Many who are reading this post learned the hard way that their preparer made a costly mistake. Can you sue your preparer? Yes.
Tax preparers are responsible for any interest and penalties that you may incur. Despite popular opinion, they are usually not responsible for the additional tax you owe. Why? Because had they not made a mistake, you would have owed this money anyway.
Legal fees and other damages are often recoverable as well.
For more information, visit our sister accounting malpractice site.
Mahany Law is a full service law firm helping people who were victimized by bad accountants. We also are a whistleblower law firm that helps people with inside information about fraud recover cash rewards.
For preparer malpractice cases, we consider cases where damages are $500,000 or more.
For more information, contact Brian Mahany online, by email , or by phone . All inquiries are protected by the attorney client privilege.