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"Getting Help"

by Greg Mermel, C.P.A.

Published in the "Money and Taxes" column in PerformInk on January 30, 2009

This morning, my new staff accountant asked me, “When is a tax return complicated enough that someone needs professional help? What’s the dividing line?” Telephone inquirers during tax season often ask me the same thing from a different angle, wondering if they need professional help.

My answer is that there is no clear dividing line, just as there is no definitive answer to the question of “should I consult a mental health professional?” Some people see a shrink for years and years, seeking nothing more than confirmation that they are appropriately handling the everyday stresses of life. Others who could clearly benefit from therapy or psychotropic medication stumble ineffectively through life, unless and until help is more-or-less forced on them by external events such as a failing marriage or a “not guilty by reason of insanity” plea.

Similarly, some people go to a tax professional just for the comfort of having an expert look at their data. Some arrive at my office bearing letters from the Internal Revenue Service proving that they have made a God-awful mess of their filings. Some feel like they could do their own taxes, but they would rather not. And some know their situations are way too complicated for a do-it-yourself project.

Dr. Who?

Finding the right tax professional – someone with the right skills and personality fit – can be as daunting as finding the right psychotherapist, and maybe harder. Anyone holding themselves out as a therapist has to have some kind of licensed credentials: MD, clinical psychologist, LCSW, etc. But the legal minimum qualification for holding yourself out as a tax professional in Illinois (and in most other states) is:

Nothing.

That’s right. Nothing. Anybody can find a space, put up a sign “professional tax return preparation” and start doing business. No credential, skills, knowledge or experience required.

Professional credentials do exist for tax work: lawyers, certified public accountants (like me), and enrolled agents. All three share certain common characteristics. Gaining each of these credentials requires taking extensive coursework and passing a lengthy and challenging exam. (The CPA exam currently takes fifteen hours.) And only persons with one of these credentials can represent taxpayers before the IRS. Other “people” (you know the ad) can come along to support or explain, but they cannot be your spokesperson or delegate.

Understand that becoming a lawyer or CPA involves areas of knowledge and expertise beyond taxes. Not all of these folks do tax work, nor do they want to. There is a good reason that I do tax returns for twenty or so attorneys and a few other CPAs.

And as with any licensed profession – surgery comes to mind – skills will vary once you have found practitioners with the appropriate focus. I think I am pretty damn good and I know some others who are. I have also had to clean up the wreckage left by some CPAs who were seriously inept. Nor do I mean to say that all unlicensed practitioners are incompetent. Some do very good work. But I think the odds of finding a capable person are much better with credentialed preparers.

Bigger Problems

What you have just read may seem self-serving, and that appearance is why I have avoided this topic for the nearly eighteen years I have been writing this column. In the past couple of years, though, some ugly situations have emerged that I want to address.

Honesty, both of practitioners and taxpayers, has always been an income tax issue and likely always will be. Lawyers, CPAs and enrolled agents are legally bound to ethical standards. While a few malefactors exist, almost all at least try to color within the lines.

Without those restrictions, some unlicensed preparers choose to compete with one another by giving taxpayers bigger refunds not by superior skill or knowledge, but by fraud: fabricating deductions, faking W-2s, claiming inappropriate credits, or whatever else they can concoct. This does not happen just with the fly-by-night one man offices. Last winter, the Chicago area franchises of a major national tax preparation chain were abruptly shut when their owner and managers were arrested for preparing fraudulent returns.

Other unlicensed practitioners are not so much interested in the tax return preparation business as in the information they obtain from doing tax returns. Some crudely use the information for identity theft. Others have used the information to identify prospects for the sale of other, more profitable products, such as investments, mortgages, or refund anticipation loans. Again, this does not involve just the little players. One of the giants of the business has settled cases with the attorneys general of several states over exactly these practices.

Congress and the IRS have taken note, and responded. Calling a high-interest rate refund anticipation loan an “instant refund” is now prohibited. Advertising the size of your customers’ tax refunds, or claiming to get bigger ones than somebody else, is now a criminal act. The closest they can come is to claim (as one chain does) that “you’ll get the maximum refund you’re entitled to.” It is now also a crime to use tax return information for investment sales or any other purpose without written consent from the taxpayer. The regulations require that the consent use IRS-specified text, be on a separate piece of paper, and in at least twelve-point type – all presumably to make sure people know what they are signing. Good luck on that.

If You’re Playing Diogenes

Not much objective data is available to help you choose a tax professional. Rather, you ask your friends, and the appropriate professional contacts like lawyers or bankers. Consider locations, information on the practitioner’s web site, Google results, and whatever else makes you comfortable. Then make a choice and keep your BS detector engaged until you are confident of your choice.

Free Offer

Every year during the income tax season, I offer free copies of my “Checklist of Potential Deductions...” for those in the arts. Just call my office, or send an email to checklist@gregmermel.com.

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