Beware of tax preparers like one in Oklahoma who told a customer that carrying a shoe catalogue in his car would make him a shoe salesman in the eyes of the Internal Revenue Service.
Be careful, too, of tax preparers like one in Cleveland, Ohio, who fabricated deductions to build a large refund for a customer and then demanded part of the refund as a fee.
"In this profession, you can have a lot of fly-by-nights, which makes it bad on everyone else," said Charlene DeLong, president of the National Assn. of Income Tax Preparers. "Someone can set up a storefront, they're there for three months and then they're gone."
Tax accountants and the Internal Revenue Service offer two words of advice to persons searching for a reliable tax preparer: Be cautious.
With a bit of knowledge, it is possible to find a professional tax preparer who will save you as much money as possible, do nothing that will cost you an audit and charge you a reasonable fee.
Remember, if you are unfortunate enough to choose a preparer who does a bad job, the IRS holds you responsible for paying extra taxes and penalties if the mistakes are discovered. Consider these cases reported by the IRS:
--An Oklahoma tax preparer who told a customer to carry a shoe catalogue in his car so travel could be deducted as a business expense was convicted of fabricating $200,000 in business expenses for 20 clients. According to testimony at his trial, he told other clients that hunting, fishing and home decorating expenses were business deductions.
--A Cleveland tax preparer indicted for falsifying returns had persuaded his clients to sign incomplete tax forms. The preparer was accused of using fictitious figures to build deductions that resulted in large refunds. He then demanded a part of the refund as a fee.
--A Pittsburgh tax preparer who was sentenced to a year in prison had erased the addresses of clients who were due refunds and substituted his own address. When the refund checks arrived, he cashed them and pocketed the money.
Little State Supervision
Tax preparers can be lawyers and accountants, but they can also be someone like your Aunt Mabel or your neighbor Phil. Oregon is the only state that requires tax preparers to be licensed. California requires tax preparers to take classes. Elsewhere, "everyone is on their own," said Douglas Bennett Sr., president of the National Assn. of Tax Practitioners.
In fact, Bennett said, anyone can say, "I've done my neighbor's return for two or three years, I think I'll hang out my shingle."
Experts at the IRS and in the tax preparation business say that there are ways to make sure you get a good preparer.
"You should choose one that is going to be there all year round," Wilson Fadely, a spokesman for the IRS, said. "Sometimes we find people set themselves up to file returns and then disappear."
Make sure that the preparer signs the return and gives you a copy, as required by law.
Be wary of a preparer who guarantees a tax refund "or an individual that bases the fee on a percentage of the refund they're going to get you," Fadely said.
Also be wary of preparers who "encourage you to take things you know you're not entitled to. For example, 'How many kids have you got? Two? We'll make it four.' "
Laverne Forster, director of education for the National Assn. of Tax Practitioners, said that taxpayers should not rely solely on the recommendations of others. "Ask questions," she said.
Do the candidates specialize in tax preparation? Are they keeping up with changes in the tax laws? What type of continuing education do they have? What kind of tax experience do they have? Do they specialize in preparing personal returns, business returns, returns for farmers or others in specific occupations? Are they members of a national association?
Forster, whose Kaukauna, Wis.-based organization has 4,000 members, said that preparers are likely to have more than usual proficiency if they are "enrolled agents," which means they passed an IRS examination, or if they are accredited in taxation, which means they passed an exam given by the Accreditation Council for Accountancy.
The Institute of Tax Consultants in Seattle also administers an examination for certifying tax practitioners. Preparers who pass the test can call themselves certified, but they must also take 60 hours of classes and seminars every two years.
Proficiency varies, and so do fees. DeLong said that a survey of 500 members of the National Assn. of Income Tax Preparers found fees ranging from $30 to $80 for completing a 1040 long form with an itemized schedule. Forster said that members of her organization charged $35 to $70.
She said that certified public accountants are likely to charge more for their services because of their additional training.
Tom Block, president of the tax operation division of H&R; Block, which prepared 9 million returns last year, listed his organization's average fee at $42. H&R; Block, which has 43,000 tax preparers in 8,000 offices in the United States, promises to pay any interest or penalties that result from its errors but, like other tax preparers, will not pay additional taxes.
But the best advice comes from the IRS. "If you do have a complex situation and you have to go to a tax preparer, be cautious," Fadely said.