Is Your Return-Preparer Well Prepared?
By Orlando Gotay
Arecent decision from the US Tax Court ruled that a false or fraudulent income tax return prepared by a paid return-preparer can be audited, and tax assessed, well past the three-year time frame for regular audits. This is also the normal rule for self-prepared returns—fraudulent returns are “open” forever. That the “bad act” was allegedly committed by a third party, the return-preparer, gave me pause and made me write a little about their world. It is critical that taxpayers understand that choice of preparers may very well have effects, as Mr. and Mrs. Finnegan (of the tax court case) recently learned.
Tax matters for US persons abroad are generally more complex than for “home landers.” Because of this, and constantly changing laws, rules, regulations, and guidance from the courts, federal government, and the states, it is important that you select a competent return-preparer who is familiar with international US tax issues and to make sure you comply with all tax laws.
Does your preparer have a Preparer Tax ID Number? A PTIN is an IRS-provided number. It must be obtained and renewed annually by all who prepare US federal tax returns for a fee. Be very wary if a paid return-preparer does not have one.
Attorneys, CPAs, and Enrolled Agents are authorized to prepare tax returns and also represent taxpayers before the IRS on any matter. Attorneys are licensed by state or US territory Supreme Courts. State accountancy boards license CPAs. Enrolled Agents have passed competency IRS exams (or are former IRS employees) and are also authorized to represent taxpayers before the IRS. To prepare returns for compensation, they all need to have a valid PTIN.
Unenrolled preparers are those not listed above. The IRS urges (but does not require) them to take basic tax courses and an “Annual Filing Season” update. Some states require them to go through registration and continued education, but requirements vary. They may or may not be able to represent a taxpayer on a return they prepared, but not at all in other matters.
Of the 713,000 valid PTINs, about 49 percent belonged to persons who were neither attorneys, CPAs, Enrolled Agents, nor Annual Filing Season participants. I did a search for PTINs issued to persons with Mexico addresses, and found 12. There may be others with a non-Mexican address. Remember, a PTIN is not a professional designation—it is merely a number that return-preparers must have and does not attest to the competency of a preparer. It simply means authorization to prepare returns for a fee.
Orlando Gotay is a California licensed tax attorney (with a Master of Laws in Taxation) admitted to practice before the IRS, the US Tax Court, and other taxing agencies. His love of things Mexican has led him to devote part of his practice to the tax matters of US expats in Mexico. He can be reached at email@example.com.