Why It Is Crucial To Choose Your Tax Preparer Carefully

SACRAMENTO, Calif.--(BUSINESS WIRE)--

It is a typical tax time tragedy. A consumer finds a tax preparer who guarantees the biggest refund. The tax preparer delivers his or her promise. The consumer happily refers the tax preparer to family and friends. No research is done on the tax preparer until the clients get a rude awakening—an audit.

“Too many times I hear stories about these questionable tax preparers who get big refunds for clients by exaggerating credits and deductions. The client usually has no idea,” said Mary Beth LaMunyon-Jones, board member of the California Tax Education Council (CTEC), a state-mandated nonprofit organization that manages the registration of unlicensed tax preparers.

In the end, the tax preparer becomes untraceable and the client is forced to pay penalties.

“Enforcement teams will go after illegal tax preparers, but that won't automatically fix the errors or fraud done on the tax return,” said LaMunyon-Jones.

It is because of these types of scenarios that California has set requirements for professional tax preparers. State law requires anyone who prepares or assists with preparing tax returns for a fee, and is not a licensed attorney, certified public accountant (CPA) or enrolled agent (EA), to register with CTEC. Each CTEC-registered tax preparer (CRTP) must be bonded to protect clients against fraud, plus complete courses on federal and state tax laws each year.

“Anyone operating without a license or CTEC registration is breaking state law,” said Celeste Heritage, CTEC administrator.

As of 2011, the Internal Revenue Service is requiring all paid tax preparers have a Preparer Tax Identification Number (PTIN). The goal is to keep better tabs on tax preparers and their work. In addition to PTINs, tax preparers who are not licensed attorneys, CPAs or EAs must complete IRS continuing education courses each year, plus pass an exam and background check no later than 2013.

California consumers should verify their tax preparer is either an attorney, CPA, CRTP or EA and can provide proof of a valid PTIN. Tax preparers who do not meet those minimum requirements may face penalties from state and federal enforcement teams.

CTEC is a nonprofit organization that was established in 1997 by the California State Legislature to protect taxpayers. Consumers can report illegal tax preparers at www.ctec.org or call (877) 850-2832 for more information.