FIND A TAX PROFESSIONAL

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DON'T ASSUME

Do you remember the episode of the ODD COUPLE television series where Felix explains to Oscar what happens when you assume (you make an ass out of u and me)? Making false assumptions when choosing a tax preparer can be costly!

 

Don't assume that because a person has the initials "CPA" after his/her name he/she is an expert when it comes to preparing federal and state income tax returns!

 

The CPA designation means that a person took a very difficult test at the beginning of his/her career, possibly many, many years ago, with very few questions on 1040 tax law.  It is certainly no guarantee that he/she is competent and current on federal and state individual income taxes.

 

In the past, whenever I got a new client I would ask to see his or her last three (3) years’ tax returns, to make sure I did not miss any carry forwards and, more important, to see if there are any errors that I could correct on an amended return. In my 40+ years of preparing tax returns I have found more mistakes on 1040s prepared by CPAs than by any other class of preparer, including the taxpayer himself.

 

35+ years ago I was a "para-professional" in the Small Business Services Department of one of the then "Big Eight" CPA firms. While reviewing the prior year's federal and state tax returns of a client whose current returns I was preparing I found a very obvious error on the state tax return that caused the client to pay more tax than necessary. Under the firm's policy, the return, which had been originally prepared by a CPA, was reviewed by his "manager" (also a CPA), and signed-off on by the head of the department (a CPA) and a member of the Tax Department (a CPA). Not one of these CPAs picked up the obvious error!

 

A student in one of the tax planning/preparation courses I taught at local suburban adult schools many years ago asked me what was the difference between a tax return prepared by a CPA and one prepared by me (I am obviously not a CPA). My answer was "at least $100.00".


A fellow tax blogger, who happens to be a CPA, posted a few years back –

 

Being a licensed CPA or attorney is no guarantee of tax expertise. The licensing examinations do not emphasize tax law. Plus, neither is required to take any tax related continuing education to maintain their licenses. Truth is many CPAs and attorneys have little tax experience. I should know. I prepare tax returns for them.”

 

The post ended with -

 

Virtually every new client I get is an amended tax return waiting to happen. Guess who prepared the returns I’m amending…mostly CPAs!

 

I have said it time and again – just because a person has the initials CPA after his/her name does not mean that he/she knows his/her arse from a hole in the ground when it comes to preparing 1040s.

 

Don't assume that H+R Block will charge a low, or even reasonable, fee for preparing your tax return!

 

When my mentor and I got a hold of the H+R Block fee schedule back in the late 1980s we were in complete shock. Henry and Richard ain't cheap! In my opinion they are very expensive. They charge fancy restaurant prices for fast food service!  

 

While, like anything else, the market affects the price of tax preparation, the major factor affecting the fees charged is overhead. Let’s look at the overhead of these “fast food” chains.

 

Because the storefronts where these chains are located are usually in high traffic commercial areas, often shopping malls, the rent is generally very high. And an important factor – H+R and Liberty and Jackson Hewitt storefronts are only open during the tax filing season, yet they must pay rent on the property for the entire year.

 

These chains have excessive advertising budgets during the season, spending millions of dollars on constant tv and radio spots as well as print advertising telling you not that they competently prepare accurate tax returns but simply to come into their office and walk out with a check. Hey, doesn’t H+R advertise during the Super Bowl.

 

H+R Block et al are corporations, and have highly compensated upper level corporate officers and employees with generous employee benefits. A while back the Associated Press reported that “H&R Block Inc. CEO Russell Smyth received compensation valued at $5.3 million in fiscal 2009, the year he took over leadership of the nation's largest tax preparer”.

 

And, most notable of all, Henry + Richard, Jackson Hewitt and Liberty need millions of dollars for legal fees and the settlement payments for the many, many lawsuits for deceptive advertising and other unethical business practices, many resulting from their previous usurious Refund Anticipation Loan offerings.

 

With commercial preparation chains I expect that the actual cost of preparing the return - salaries paid to the seasonal preparers and the training of these preparers - is the smallest item in the budget.

 

Returns prepared by the employees of Henry and Richard are second to CPAs in terms of errors I have discovered on 1040s over the years. My mentor always said that he wished H+R Block would move next door to our office - we would make a fortune fixing their mistakes!

 

In 2006 the Government Accountability Office (GAO) conducted a study which resulted in a report to Congress titled “Paid Return Preparers: In a Limited Study, Chain Preparers Made Serious Errors”. The GAO sent undercover agents with two different tax scenarios to a total of 19 offices of 5 “fast-food” commercial tax chains, including H+R Block, in a metropolitan area. In only 2 instances was the correct refund calculated, but all 19 returns contained errors.

 

Some of the more serious errors included –

 

• not reporting self-employment income in 10 of the 19 cases,

• claiming an Earned Income Tax Credit on an ineligible child in 5 of the 10 applicable cases,

• not claiming the education benefit (credit or deduction) that resulted in the least tax in 3 of the 9 applicable cases, and

• not claiming all available itemized deductions, or not itemizing at all, in 7 out of the 9 applicable cases.

 

I was told by the GAO that not one of the 19 preparers in the study had asked to see the undercover taxpayer’s prior year’s return!

 

A caveat -

 

To be perfectly fair, over the years I have come across CPAs who actually knew their “stuff”, and some who are actually experts,  when it came to income taxes, and even some who charged reasonable fees. But this is not a ”given”. And I am sure that there are probably some competent, ethical and professional H+R Block preparers out there.

 

While it may actually be possible that the best tax preparer, at the best price, for your particular situation is either a CPA or an H+R Block employee, this is only because of the education, experience, ability, temperament, and other factors that are specific to that individual preparer.