Barron's International Tax Service

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Tax Return Preparers

The Internal Revenue Service is initiating steps to regulate tax return preparers.  Stating that competence can only be measured by testing, education, and ethical training, IRS intends to develop and administer an examination to test tax preparers' technical knowledge of federal tax returns and ethical standards.  Currently at least one-fourth of preparers are not required to improve levels of competency through continuing educational development with the result that errors are rife and quality is compromised.

Tax laws are increasingly complex and frequently modified, and so tax return preparers should dedicate themselves to continuing professional education, affiliation in a professional accounting organization and specialization in the field of tax preparation in order to best serve their clients.  Because taxpayers bear ultimate responsibility for the accuracy of their tax returns, they deserve the best care and close attention of their preparers.

What are some steps you can take when considering the services of a tax preparer?

• Ask for reference.  Talk directly to some of the preparer's clients.
• Find out what are the preparer's credentials and experience.
• The return preparer should sign your tax return and provide you with a copy
• Never sign a blank tax or authorization form
• Avoid financial firms that do not have a qualified tax preparer on staff
• Do not allow your return preparer to pay your taxes or receive your tax refunds
• Be careful if a preparer promises larger refunds than his competitors
• Review your tax return before signing.  Ask questions of entries you don't understand
• Never pay exorbitant fees based on a firm's overhead rather than the return preparer's actual costs of taking care of your business

Unscrupulous return preparers may claim inflated personal or business expenses, false deductions, unallowable credits or excessive exemptions on returns prepared for their clients.  They may also manipulate income figures to obtain fraudulent tax credits.  Tactics used by dishonest return preparers include:

• Reporting non-existent deductions against business and rental income
• Exaggerating itemized deductions such as to charities, doctors, interest and miscellaneous business deductions
• Claiming false dependents
• Manipulating tax credits
• Treating personal expenses as business costs
• Offering financial or estate management services (return preparers are neither financial advisors nor estate managers)