Warnings about bad tax preparers abound again this filing season from the IRS and state tax authorities. Some warning signs should be obvious to wealthy taxpayers. Others are not.
“Given the complexity of the law, I think individuals of any income level face challenges of knowing if what their preparer is telling them is complete, accurate and relevant,” said Annette Nellen, a CPA, attorney and professor at San José (Calif.) State University.
John P. Schultz, a CPA adn partner at Genske, Mulder & Company in Ontario, Calif., said taxpayers should avoid preparers who rely on rough estimates.
“Many preparers who may be understaffed or overworked will try to make their own lives simpler by estimating expenses for clients: $1,500 for supplies, $2,700 for repairs,” he said. “Hand-in-hand with this is that your preparer doesn’t ask you for support or details for expenses. This should be part of the process each year.”
Also beware of preparers who quoted fees for preparation before seeing a tax return. “Many preparers, as soon as they hear about how much a person has or makes, will immediately quote a large fee,” Schultz said.
He also warned against preparers proposing aggressive or new tax strategies “because they’re the ‘new thing to do,’ such as captive insurance, Qualified Opportunity Zones and so forth instead of strategizing with the client to figure out their wants and needs. Even worse: Proposing investment and business strategies that are tax-driven, or tax savings-driven, and not modeled for the client.
“A CPA’s job shouldn’t be to have you pay $0 taxes each year or get a refund but to generate a long-term tax strategy that allows for desired cash flows for living and maintenance while also making the best use of tax rates and brackets for everyone involved,” Schultz said.
For those changing preparers, Schultz warned against new preparers who don’t ask for any prior-year returns. “Lots of items have carryforwards from year to year in tax returns and need to be reviewed before input into the current year software,” he said.
Changing preparers also shouldn’t be an emotional matter. “I get a lot of comments from new clients that they didn’t want to leave their old tax preparer because they didn’t want to hurt their feelings,” said Scott Kadrlik, CPA and managing partner at Meuwissen, Flygare, Kadrlik & Associates in Eden Prairie, Minn. “They were basically waiting for them to die before they switched preparers.”
The IRS advises using a preparer who is available year-round. Ask tax preparers for their IRS identification number. Never sign a blank tax return. Also, the IRS will not call threatening legal action; taxpayers shouldn’t respond to text messages, emails or social media posts claiming to be the IRS.