How to shop for a tax preparer
In most states, tax preparers don't need licenses. But that doesn't mean they don't have one.
Elizabeth Atkinson, a tax attorney in Norfolk, Va., thinks it's a little odd that the laws in her state require nothing of tax preparers. They don't need to own a calculator, let alone a license.
By contrast, Virginia makes sure hairstylists know what they're doing: They can't pick up a curling iron without a license. "The hair will grow back if they mess it up," Ms. Atkinson says. "But if someone messes up your tax return, it has much more serious consequences."
Indeed, a crooked or incompetent tax preparer can saddle you with an unpaid tax bill and even interest and penalties, making it crucial to hire the right person. But how do you know you're making the best choice?
It's a question facing more Americans than ever before. According to the IRS, tax preparers signed off on 60 percent of the 130 million individual returns filed for the 2004 tax year. That's up from 56 percent in 2002.
To avoid trouble this tax season, the key is to learn as much as you can about the person you're about to hire. "You don't know who's more competent than the next guy until you start asking questions," says Cindy Hockenberry, an analyst with the National Association of Tax Professionals.
"I would suggest people start out by asking how long they've been in business, what their background is, and do they have a degree, which isn't required," Ms. Hockenberry says. "Have they been in the area for a long time? Are they open all year? Do they stand behind their work?"
Some tax preparers and tax-preparation chains will automatically pay any interest and penalties if they make a mistake in a return. They won't pay the tax, though - the taxpayer still has to shell out the money.
If you live in California or Oregon, ask about licensing. Although Congress has been talking for years about a national licensing system, only those two states require tax preparers to have licenses.
"It's not too difficult to get that license, but in California you have to have 30 hours [of classes], and each year after that you have to have so many hours of continuing education," says William Perez, an enrolled agent and former IRS employee in San Francisco.
Outside California and Oregon, tax preparers as a group don't need licenses. But that doesn't mean the person who prepares your taxes won't have one.
Your tax preparer may be an enrolled agent or certified public accountant (CPA). Both of those professions require licensing and one benefit of using them is that, unlike lower-level tax preparers, they can represent you before the IRS regarding tax forms that they didn't file.
Enrolled agents are licensed by the IRS and are a step below CPAs. "They vary in their levels of expertise," Atkinson says. "They're often people who have worked for the IRS in the past, and the only reason they're not CPAs is that they don't have the educational background."
Once you've figured out your preparer's background, it's time to discuss price. San Francisco's Perez says rates can run about $150 for a basic return and easily double or triple that for a more complicated return.
Even the most careful taxpayers can end up with a bad tax preparer. But complaints appear to be rare: The IRS successfully prosecuted just 117 tax preparers for fraud in fiscal year 2004, compared with 67 the previous year. Those who were convicted didn't get off easily: They were sentenced to an average of 19 months of prison time, home confinement, or electronic monitoring.
Nationwide, local Better Business Bureaus received just 1,004 complaints about tax preparers in 2004 compared with 28,318 about cellphone companies, says Sheila Adkins, spokeswoman for the Council of Better Business Bureaus.
Ms. Adkins suggests that taxpayers stay away from preparers who promise larger refunds than anyone else. Fees should never be based on tax savings or the size of a refund, she says.
Finally, she says, make sure to give your tax forms a once-over yourself before you sign them. "No matter who does your tax return, it's still your responsibility."