CONGRESS

Congress May Create Better Standards for Tax Preparers. How You Can Vet Your Accountant

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  • You know you're on the hook to file your taxes, but who is overseeing your tax preparer?
  • It turns out those professionals face little federal regulation, and a new bill in Congress aims to change that.
  • In the meantime, there are steps you can take to make sure your tax preparer is legit.

Many people have hired a tax professional to make sure they do not run afoul of the IRS.

But who is regulating those tax preparers?

You may be surprised to find out there are few government controls in place.

Now, a bill that was just reintroduced in Congress last week — the Taxpayer Protection and Preparer Proficiency Act — aims to change that and allow the IRS to regulate these professionals.

The bill, which was introduced by Reps. Jimmy Panetta, D-Calif., and Tom Rice, R-S.C., would put minimum competency standards in place that tax preparers would have to meet.

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That would include demonstrating they are able to prepare returns and process refunds, along with other criteria. Additionally, tax preparers would face continuing education requirements. Professionals who fall short of those requirements could have their preparer tax identification numbers, or PTINs, taken away by the IRS.

The IRS currently receives tens of thousands of complaints per year. But while tax preparers can be prosecuted for fraud, they cannot be held liable for incompetence.

Further, once a taxpayer signs and submits their return, they are responsible for the information it contains.

"Mistakes by incompetent tax preparers have led to many taxpayers getting audited or penalized through no fault of their own," Rep. Panetta said in a statement. "Anybody who pays for their taxes to be prepared deserves to know that their tax preparers are professional, proficient, and principled and, if not, will be held accountable by the IRS."

Notably, this would not be the first time tax preparers were supervised by the government agency.

The IRS formerly had a registered tax preparer competency program, which included a proficiency test and continuing education requirements. But the tax agency's program hit a major road block in 2013 following a lawsuit brought by the Institute for Justice that questioned its authority to regulate this area.

Groups like the American Institute of CPAs have not given up on reinstating industry supervision.

Raising the compliance and ethical conduct requirements of paid tax preparers is "something the AICPA has endorsed forever," said Edward Karl, vice president of taxation at the national professional organization, which has publicly endorsed the bill.

The National Association of Tax Professionals also backs the proposal.

"From a taxpayer perspective, we really feel it's important to ensure that tax return preparers are held to a standard that corresponds with the importance of the role they play in people's lives and the information they have access to in order to do that job accurately," said Scott Artman, executive director at NATP.

How to do due diligence on your tax preparer

An IRS office building in the East Harlem neighborhood of New York.
Timothy Fadek/Bloomberg via Getty Images
An IRS office building in the East Harlem neighborhood of New York.

Even as professional groups push to see changes, taxpayers still have to navigate a relatively unregulated market for these services.

However, there are steps you can take to make sure you're working with the right tax professional.

Start out by doing some research, Artman suggested.

Review the tax preparer's website to see what credentials they have, how long they have been in practice and their areas of expertise. Also do a social media search to review whether clients have recommended them or otherwise commented on their experiences, Artman said.

Ask colleagues, friends and family who they work with, how long they've known the professional and if they're happy with them, Karl suggested.

Many professionals provide free consultations, which can be a great time to ask them more about their experience, Artman said.

Be sure to ask a tax preparer how they charge and if they can give you an estimate how much working with them will cost you.

"Know that going in, just like you're going to buy a TV, you're going to shop around and compare prices," Karl said.

Perhaps most important, verify that any licenses they list, such as CPA, or certified public accountant, or EA, enrolled agent, are accurate and up to date, Artman. The website CPAverify.org can help verify that license. To confirm a CPA's license is still active, the AICPA also recommends contacting the State Board of Accountancy where the professional is licensed.

Alternatively, you can email the IRS to inquire about the state of an enrolled agent at epp@irs.gov.

The IRS also offers a directory of professionals with PTIN numbers, which also includes information on other credentials. You have a right to ask for that number and use that database to verify it, Karl said.

In addition, the NATP has a search tool on its website to search for tax preparers affiliated with its organization, who are held to a code of conduct and ethics and professional standards, Artman said.

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