Making sure tax preparer adds up

The Baltimore Sun

Right about now, you may be throwing up your hands and promising yourself to hire a professional to file your tax return.

If you're like many, you might go to an individual tax preparer who files returns for a fee. Some are good; others, as critics note, can fill returns with errors or purposely exaggerate deductions.

And as you might know, any mistakes or false claims on your return are ultimately your responsibility - not the tax preparer's. If your deductions are rejected in an IRS audit, you will end up paying back taxes and stiff penalties.

So, how do you know if you have a good preparer or one that will get you in hot water with the IRS? Unlike certified public accountants, tax attorneys or enrolled agents, these individual preparers aren't licensed or regulated.

"Right now, they can buy a box of software and they are a tax preparer," says Robin McKinney, director of the Maryland CASH Campaign. There's no oversight and no place to lodge a complaint if you're unhappy, she says.

Currently, only two states - California and Oregon - regulate individual preparers. But Maryland lawmakers are considering legislation that would register individual tax preparers. So are Congress and lawmakers in nearly a dozen other states.

The Maryland CASH Campaign has been behind the effort to register preparers here. The nonprofit prepares returns for free for low- to moderate-income taxpayers. It sees many errors on filers' previous returns filled out by tax preparers, McKinney says. "Everything from fraud to just incompetence," she says.

Maryland's proposed legislation would create a state board of individual tax preparers to register preparers, investigate complaints and impose penalties on bad actors.

To be registered, an individual would have to pass an exam and take continuing education.

The Maryland Association of CPAs and the state comptroller are among the supporters.

"My office sees firsthand the problems that result from returns prepared by individuals who are, at best, uneducated in the tax area, and, at worst, intentionally deceiving people," Comptroller Peter Franchot said in a statement. The legislation "would give the state a method of tracking problem preparers."

Others aren't fully on board.

"We're certainly in favor of raising the bar ... as long as it's not onerous," says Paul Cinquemani, director of government relations for the National Association of Tax Professionals, which represents tax preparers. "We don't think that this one is," he added, referring to Maryland's legislation.

But Cinquemani adds that fraudulent and unscrupulous players will always circumvent laws. And efforts to regulate tax preparers could drive small, experienced tax preparers from the business. With fewer preparers, consumers could end up paying higher fees for tax services, he says.

The proposed board would be part of the Department of Labor, Licensing and Regulation. The department opposes the legislation primarily because of budgetary constraints, says Harry Loleas, deputy commissioner of occupational and professional licensing in the department.

Even if legislators act quickly, the law won't come in time for this year's filing season.

If you're planning to hire a preparer, here are some tips from the IRS and others:

Avoid preparers that promise you a big refund without even looking at your tax situation. "The refund happens at the end, not at the beginning," says Robert Kerr, senior director of government relations for the National Association of Enrolled Agents.

Ask about fees. Don't use preparers who charge a percentage of the refund.

Ask the professional for his or her credentials.

You want a preparer up-to-date on tax laws. Ask what continuing education the preparer does. "If they admit they didn't need a tax update, that is a very bad sign," says Peggy I. Johnson, president of the Accreditation Council for Accountancy and Taxation.

Avoid preparers who won't sign returns. "There is a reason they are not signing it," says J. Thomas Hood III, chief executive of the Maryland Association of CPAs. "You want them to take some responsibility."

Another warning sign: A tax preparer who claims deductions that even you know are exaggerated or outright untrue.

Beware of the tax preparer who doesn't give you a copy of your return.

Last, if you hire a preparer and something doesn't look right on your return, ask questions. Don't forget, you're responsible.

To suggest a topic or share tips with readers, contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com

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