Hiring a "Tax Professional?" Buyer Beware

I was watching television the other night with my family. About three years ago, we had television shows that we just couldn’t miss. Like most Americans we had a DVR that contained television series that we didn’t have time to watch. On a day with nothing to do, I, my wife or my children would set up the DVR to record our favorite shows, so that we could do other things while that show was on. As a kid our house was the first house that had a VCR, so at a young age, I had gotten used to “taping” television shows. Our DVR would get full, and then we would have to make the dangerous choice of whose show to delete. Typically my kids are the ones that lost that battle.

Three years ago we “killed our television.” Like a gladiator slaying a lion, we ended our addiction to primetime T.V. with one piercing click of the remote. The T.V. in our living room remains dark until football or basketball come on, and it lights up like a decorated house at Christmas time; ready to satisfy my thirst for competition. So the T.V. was on, and the game had come to halftime. I went to the kitchen to satisfy the ache in my belly. In the time it took for my popcorn to start pinging against the pan, and me to make a drink, I saw a commercial. Like most people, I learned at an early age to tune commercials out. Their purpose was to fill in the gaps between stoppages of play in sports. As I made myself comfortable on the couch, this commercial grabbed my attention.

The commercial started with a lady advising a customer in a retail store, whether they had a particular garment in her size. To the customer’s surprise, she recognized the lady as her tax preparer. In the customer’s amazement she said to the worker that she thought the worker was her “tax professional.” The worker smiled and said: "I am especially right after the holidays." To this I kind of laughed and thought to myself, if Americans only knew…

What they don’t tell you in the commercial is that most big tax chains hire pretty much anyone off the streets to prepare tax returns. When it is not between the months of January and May, these firms offer these 90 day “tax courses,” that you have to pay a fee to take. Anyone can take these classes. At the end of the class they offer the students a job preparing tax returns.

In most States you don’t have to have a license to be an accountant. Anyone can go into business and say they are an accountant. Further, the Internal Revenue Service does not regulate tax professionals. In 2010, the Internal Revenue Service set out to change this. They introduced a designation called Registered Tax Return Preparer (RTRP). In order to prepare a tax return, you had to be an Enrolled Agent, Certified Public Accountant, Attorney, or a Registered Tax Return Preparer. The new designation of RTRP licensed and regulated tax preparers. RTRP’s were allowed to prepare returns, but not allowed to represent taxpayer’s before the Internal Revenue Service. They had to take a basic competency test, and take 15 hours of Continuing Education each year to maintain their license.

On January 18, 2013 U.S. District Judge James Boasberg ruled in the case Loving v. Internal Revenue Service, that the IRS could not regulate tax preparers. The Institute of Justice argued that the IRS lacked statutory authority to impose regulations. They went on to argue that the implementation of this regulation of tax preparers would put some mom and pop tax preparers out of business. The judge agreed with the Institute of Justice’s argument and the judge’s order issued an injunction against the IRS, which barred them from implementing their licensing requirements. This ruling only affected RTRPs and not Enrolled Agents, Certified Public Accountants or Attorneys. On February 1, 2013, the IRS filed a motion to set aside the order of the judge, until the IRS could appeal the judge’s decision. That motion was denied. This case is ongoing and should be closely monitored by the public. At the current time, anyone can prepare tax returns.

There is a problem with non-licensed tax professionals. The first and most obvious problem is that they are not regulated as rigorously as a licensed professional. The Office of Professional Responsibility (OPR) regulates Enrolled Agents, Certified Public Accountants, Attorneys, and Unenrolled Preparers. These Unenrolled Preparers are the ones that are not licensed.

Unlicensed tax professionals pose another problem; they do not have to stay current on tax law. They may or may not know what they are doing. In my introduction to this article I mentioned that big tax services hire just about anyone to do tax returns. This is a scary proposition as most of them do not know what they are doing. I meet with clients all the time that have had their previous year’s tax return done by one of these companies and they are really messed up. I spend a lot of time fixing errors from these big box firms. The problem is that people don’t know what they don’t know. These professionals (and I used the term lightly) are part time tax preparers during the year. If your return is selected for audit, typically they cannot fully represent your interests before the IRS.

Just a note here, licensed tax professionals can’t make commercials for television. It’s considered unethical. When hiring someone to do your tax returns, ask questions. You could be hiring a wolf in sheep’s clothing.

For more information visit www.smalleynco.com

If you have any questions you can email Craig W. Smalley E.A.

Author of the books: It Starts With an Idea – Tax Tips for Small Businesses available on Nook and Kindle, The Ultimate Real Estate Investor Tax Guide, available on Nook and Kindle, The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012 available on Nook and Kindle, Everything You Wanted to Know about the IRS – Audits, Appeals and Collections available on Nook and Kindle, Tax Avoidance is Legal! The Complete Guide to Individual Income Tax available on Nook and Kindle, The Complete Guide to the Affordable Care Act’s Tax Provisions available on Nook and Kindle, The Complete Guide to Retirement Plans for Small Businesses available on Nook and Kindle, and The Complete Guide to Estate, Gift and Trust Taxation, available on Nook and Kindle