Choosing a Tax Preparer

Each year taxpayers hasten to file income tax forms with the Internal Revenue Service before the April 15th deadline, and each year changes to the tax laws may mean new requirements, new restrictions on deductions, and new forms. Sometimes this can add up to confusion. If you understand the tax changes, you may feel secure in using this knowledge to complete your own tax return. However if you feel you need assistance, you might consider using a tax preparer.

Who Qualifies as a Tax Preparer?

According to the IRS, an income tax preparer is any person who receives compensation for the preparation of all or a substantial portion of any tax return for another individual. This definition also includes any person who furnishes the taxpayer with sufficient information and advice so that the completion of a return is largely a mechanical or clerical matter. People who are not paid for their services are not recognized as income tax preparers by the IRS.

There are no national educational and professional requirements for tax preparers. However, certain types of tax professionals such as enrolled agents, accredited tax advisors, accredited tax preparers, certified public accountants, and attorneys are required to meet the educational standards of their profession.

Types of Income Tax Preparers

Since there are numerous types of tax preparers, offering varying levels of expertise at varying costs. It is important to understand the difference among them and to choose the type that best fits your needs and budget.

Internal Revenue Service: The IRS offers free tax assistance to those taxpayers who wish to prepare their own returns. Local IRS offices in all metropolitan areas distribute free publications and conduct free tax clinics. The IRS also has a toll-free hotline telephone number 1-(800) 829-1040 which connects you with available agents to answer your individual questions. Keep in mind that during the tax season, the lines are constantly busy. Also remember that IRS employees do not qualify as income tax preparers. The IRS also offers information and tax forms on the World Wide Web at

The government does have a special program to help those taxpayers who are physically or mentally unable to prepare their own tax returns. Those qualifying include the disabled, seniors, and non-English speaking citizens.

Senior citizens 60 years or older may receive free tax aid from the American Association of Retired Persons (AARP) in a cooperative agreement with the IRS. The AARP sets up, in all major cities, offices staffed by volunteers who are trained to handle the special needs of senior taxpayers and to ensure that they receive all the tax credits they are due. The association also will arrange for home visits to prepare returns for individuals who are unable to visit their locations. Since this is a voluntary service, these preparers are generally not responsible for mistakes in the information or advice they give. For information about this service and locations in your area, contact the American Association of Retired Persons, AARP Tax Aid Site Locator, 601 E. Street, N.W., Washington, D.C. 20049, call 1-(888) 227-7669, or visit the AARP web site.

National Tax Services: These are chains that maintain franchise offices around the country. The main advantage of a national tax service is convenience. During tax time, offices are open nights and weekends, and customers are serviced on a drop-in, first-come basis. Costs for services are moderate. Each company has a set fee schedule, with the cost being determined by the number of forms and lines that are filled.

Tax preparers in these franchise offices are required to attend a 75-hour tax seminar given by the company during which they learn about various tax situations. A high school degree and a good command of the English language generally are the only prerequisites necessary to be admitted to the course, for which there is a tuition fee. Successful graduates are interviewed for a position with the company.

Consider a national tax service if your tax return is routine and you are willing to pay for a more personal service than that given by the IRS. Most national tax services will agree to review your completed return free, but may discover an error for which they will charge.

You may not want to go to a national tax service with a business return or a complicated personal situation unless you are familiar with the preparer, or are confident that the personnel in a particular office are qualified to handle your return. Advisors are often directed by their employers to avoid what they may consider a gray area.

Local Tax Services: These individuals generally have some knowledge of the tax laws and may be proficient with a calculator or computer. However, while the majority of these tax preparers are legitimate and competent, it is important that you conduct a thorough interview with any tax preparer before hiring one. Since no license is required, it is important to find out about their training and experience.

Enrolled Agent (EA): An EA is a preparer approved by the Internal Revenue Service to represent taxpayers before the IRS. An EA is eligible for such status either as a result of passing both a rigorous 2-day exam on federal taxation and related matters and a background check, or by virtue of prior qualifying employment with the IRS. To maintain professional status, an EA must complete a specified number of credit hours each year of continuing education in tax regulations and accounting methods.

EAs may work as independent consultants, or they may practice in a firm that includes other tax practitioners. Many EAs limit their work to a particular tax area, so it is wise to ask about his or her specific area of expertise.

The fee structure may vary greatly, so request an estimate before hiring an EA. The cost may be higher than for a national tax service but less than for a CPA.

You may wish to consult an EA if you have a more complex return to file, or anticipate dealing with several different tax forms. If your economic situation has changed from one year to the next, either through marriage, divorce, death of a spouse or retirement, or the buying or selling of a house, a recent inheritance, or other financial transaction, an EA may assist you in your financial planning and make suggestions that can help you to reduce your taxes in the future.

There are over 30,000 EAs currently practicing in the United States. To find an enrolled agent, contact the National Association of Enrolled Agents (NAEA), 200 Orchard Ridge Drive, Suite 302, Gaithersburg, MD 20878. The NAEA provides a free referral service: 1-800-424-4339. Leave your name and address on the answering machine and the NAEA will mail you the names of at least three enrolled agents in your area. The NAEA maintains the Tax Channel on America Online that provides a directory of EAs and offers free advice to taxpayers. The NAEA also has a site on the World Wide Web at:

Accredited Tax Advisor or Accredited Tax Preparer: An Accredited Tax Advisor is one who is prepared to handle complex tax planning issues such as: planning for owners of closely held businesses and the highly compensated; choosing retirement plans; performing estate planning; as well as preparing tax returns for businesses and individuals. The Advisor has taken a Master's-level, six-course program administered by the National Endowment for Financial Education, and may also be an EA.

An Accredited Tax Preparer is one who is equipped to handle the preparation of tax returns for individuals, partnerships and corporations after successfully completing a basic tax preparation course administered by the National Endowment for Financial Education.

After successfully completing the course work, an Advisor or Preparer gains the right to use the credentials from the Accreditation Council for Accountancy and Taxation, which has a code of ethics and a continuing education requirement of 90 hours every three years. The Accreditation Council is located at 1010 N. Fairfax St., Alexandria, VA 22314-1574. You can call them at 703-549-2228, ext. 1341, for a list of Accredited Tax Advisors or Accredited Tax Preparers near you.

Certified Public Accountants (CPA): A CPA has a college degree (or the equivalent in work experience), has passed a state professional qualifying exam and meets other state licensing criteria. CPAs are highly skilled in accounting methods. Before asking a CPA to prepare your taxes, be certain that he or she is also experienced in handling tax matters and is enrolled in a continuing education program to keep updated on the ever-changing tax laws.

A CPA whose practice is devoted to taxes may be your best choice for a preparer if your return is particularly complex, or if there has been a major change in your lifestyle (marriage, divorce, death or retirement) which may have substantial tax consequences.

One way to find a CPA is to ask for referrals from your friends or colleagues, or request a recommendation from your employer or the tax department of a CPA firm. You might also contact the Association of Certified Public Accountants in your state for a list of members in your area. Look for a small CPA firm or an individual practitioner. Larger firms generally restrict their practices to businesses. Be certain to let the CPA know who recommended you. Also make certain that you find out who exactly will be preparing your tax return.

Public Accountants: Anyone in the public practice of accountancy can be considered a public accountant. In New York, accountants are regulated by the New York State Department of Education. For complaint and licensing information, contact the Office of Professional Discipline at 800-442-8106. Accountants may also be accredited by the Accreditation Council for Accountancy and Taxation and use the name Accredited Business Accountant.

It is important to determine that the accountant has a solid background in tax matters. Many public accountants also are EAs and are well qualified to prepare tax forms. Be sure to verify credentials.

Tax Attorneys: Tax lawyers generally charge the highest fees of all tax preparers, and appeal to taxpayers who are interested in legally sheltering part of their income. Like CPAs and EAs, many lawyers are qualified to provide advice on related tax matters from municipal bonds to estate planning, and, if specialized, are well informed on tax laws and their applications.

Choosing a Tax Preparer

Before you choose an income tax preparer, you should decide what type of services you need and how much you can afford to pay. Do you want to save time, money, or both? Is it important that you have the same person prepare your taxes next year? Are you looking for someone to just compute your tax return? Or, do you need someone to act as a financial advisor year round?

As a general rule, the more complex your tax situation is, the more you will require the advice of someone with specialized experience. For recognized professionals, such as EAs, accredited tax advisors, accredited tax preparers, CPAs and tax lawyers, you may assume a level of special training and experience, although you should inquire about their primary area of practice. For other tax preparers you will have to determine the level of their expertise.

Research a tax preparer just as you would any other service provider. Ask for referrals from friends and colleagues, or contact the national or state associations and societies and ask for their recommendations. Then interview the preparer, either over the telephone or drop by for an office visit. Before you hire a person to prepare your taxes, be certain that he or she has the expertise you are searching for, and can provide the services you need at a cost you can afford.

Discuss the cost of the service and ask for an estimate of fees. The fees should be based on the complexity of the return, and never on the size of the tax saving or refund. A tax preparer never should guarantee a refund before completing a return. Some preparers offer immediate payment of returns, for a fee. Keep in mind that this is a loan. If you accept the offer, be certain that you are aware of the terms. Read the fine print before signing any agreement.

Ask the preparer the following list of questions to help you evaluate whether he or she is right for you and your tax situation:

  • What tax preparation training and experience does the preparer have? How does the preparer keep abreast of tax laws and changes?
  • Will you be interviewed by the same person who will prepare your return? The interview process is important in recognizing deductions, adjustments and tax credits. You will want more interaction than just having a clerk fill in lines on the form.
  • How many tax forms does the preparer complete each year? Determine that he or she has ample time to devote to reviewing your situation.
  • Does the preparer have any experience in your area? Certain tax situations lend themselves to specialization. A small business owner, self-employed individual, physician or child care worker, for instance, can benefit from a preparer's in-depth knowledge of their specific field.
  • How does the preparer check the accuracy of his or her work? Does the return pass through an audit by one other person, or several people? Is it checked manually or by computer? Is the return checked simply for mathematical errors, or are errors in the interpretation of tax rules also verified?
  • Can the preparer be reached during the year? In the event that your return is audited, you will need to contact your preparer.
  • Can the preparer represent you in an audit? Only EAs, CPAs and lawyers are authorized to represent you before the IRS. Determine that your preparer is willing to represent you should it become necessary, and at what cost.
  • How is the fee determined? Most tax services have a set schedule of charges according to the number of forms that are used and filed. Professionals usually charge by the hour, but fees can range across the board from one individual to another, so be certain you have a clear understanding of the cost, and what it includes. Ask for an estimate.
  • What is the turnaround time for the return? Will all the forms be completed at the end of the interview session, or will it be necessary for you to return to pick them up? How long will the process take?

Organizing Your Information

The more information you are able to bring to your tax preparer, the more he or she will be able to help you, and the better value you will get for your money. It is very important that your preparer has a clear understanding of your economic and tax situations. Once you have chosen a preparer, take the time to organize yourself before the visit.

Compile all documents and other information that you think may apply to your taxes. Although most preparers will accept a ”shoe box” full of papers, you will save time and money if you organize the materials into categories.

Pull out last year's return. Go through the forms and make a note of changes in your current financial situation. Take copies of your last three years return with you if the tax preparer has not prepared your taxes before.

Make a list of all tax-related questions that you may wish to ask your preparer. Be an informed taxpayer. Read information on tax law changes to gain an understanding of how they might apply to you.

Contact your preparer early in the year after you have compiled all relevant documents. Do not wait until two weeks before the April 15 deadline. During the busy tax season, preparers do not have much time to spend on each form, and the late date may leave you little time to get whatever documents you may be missing.

Meeting with Your Tax Preparer

The IRS has developed a strict set of rules and regulations that a tax preparer must follow. Expect your preparer to follow these rules. Remember that ultimately you are responsible for the tax return you file.

Your preparer should review the list of taxable deductions with you. Even if you feel that few of these credits apply to your situation, it is worth the time to discover as many taxable allowances as you can. If the preparer suggests any inappropriate deductions, you should retrieve your information and seek help elsewhere. Be wary of a preparer who asks you to mail in your information without discussing it in detail with you.

IRS regulations state that the preparer must sign the return and provide a social security number and/or federal identification number, and office address. As a taxpayer, you are required to furnish this information as well. However, never sign a blank return; it is like signing a blank check and it is illegal. Also, do not sign a return that has been filled out in pencil.

Ask the preparer to retain a copy of your return for three years, the length of the statute of limitations in most tax cases. A tax return is a confidential document and should not be shown to anyone other than an IRS agent without your prior consent.

After you receive your completed return, examine it carefully before signing it. Is all the information correct? Is all the information you gave your preparer on the form? Verify that the income listed on the form matches your W2 forms and other income-related documents. If you have any questions, contact your preparer before mailing in the return.

If you are fully satisfied that the form is properly and completely filled out, sign it and mail it to the IRS. Keep a file containing a copy of your return and relevant documents for at least three years after the filing date.

In the Event of an Audit

Only enrolled agents, certified public accountants and attorneys are authorized by the IRS to represent you before the IRS and the Department of the Treasury. IRS regulations state that any individual who was paid to prepare your tax return must appear as a witness and give testimony, if requested by the IRS.

National tax services may advertise that they will accompany you before the IRS. Keep in mind however, that they may only demonstrate how the figures on the form were computed. They may not intervene on your behalf.

Many preparers will pay the assessed interest and/or penalty if the IRS determines that an error has been made which is a direct result of the preparer's work and is not due to misrepresentation by the taxpayer. It is important to know that, as a taxpayer, you are personally responsible for any additional tax, interest, or penalty that may be handed down by the IRS. Even though you may possess a written guarantee that the preparer will pay the penalty or interest due, it is your responsibility to see that the IRS receives the payment.

Tips to Remember

  • Be honest with your tax preparer. A preparer will not act as an auditor; he or she will not necessarily ask to see all your documents or request proof of the figures you give.
  • Although a tax preparer is subject to a penalty for negligence of intentional disregard of an IRS regulation, he or she is not held responsible for processing false information which he or she took to be true. Also, the preparer cannot knowingly omit information provided by the taxpayer.
  • Your name goes on your tax return, and it is your name on the IRS file. The penalty for filing false information to the IRS is severe. Be sure to claim all the deductions for which you are eligible, but be honest.