2 out of 3 paid tax preparers have no professional credential at all

Wow, where did the month of May go? I just realized I’ve only posted one article for the entire month of May…how did that happen? Well, I’ve got a few articles in process on tax strategies, including at least one more on the popular Registered Domestic Partners in Community Property states topic, but this is just a quick post on something that hit my Inbox recently.

According to IRS Return Preparer Office Director David Williams, nearly 2/3 of all paid tax preparers have absolutely no professional credential whatsoever!

In an interview with Taxanalysts’ Nicola White on May 26, David Williams discussed the IRS’ new requirement for all paid tax return preparers to register for a Preparer Tax Identification Number (PTIN). Out of over 700,000 individuals who registered, 62% had no professional certification at all! Not CPA’s, not Enrolled Agents, and probably in many cases not even college graduates.

The new PTIN efforts by the IRS are definitely a step in the right direction. Finally, people who get paid to help others with the most significant financial transaction of the year for most people–filing an annual income tax return–are at least required to be registered and demonstrate basic proficiency. But let’s be clear this is only a very small step. The new requirements demand only that such individuals complete 60 hours of training and pass a basic proficiency test. It’s roughly the equivalent of passing a single 4 credit-hour freshman college class. Better than nothing, but still…

Just goes to show that if you’re going to pay a professional to handle your taxes, or even (as we always suggest) review your work, you need to make sure that “professional” is truly an expert. Turns out 2 out of 3 “professionals” have nothing to demonstrate this kind of knowledge or experience. When considering a tax preparer, make sure you’re working with a CPA, Enrolled Agent, or Tax Attorney. Mistakes on a tax return routinely cost thousands of dollars. With stakes that high, you can’t afford to work with somebody who lacks one of those critical professional designations.

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3 Responses to 2 out of 3 paid tax preparers have no professional credential at all

  1. So a four year accounting degree, five seasons of preparing tax returns in a CPA firm, membership in the Washington Association of Accountants and 40 hours of continuing education per year are not sufficient “professional credentials” to qualify me to prepare a 1040?

    But a CPA whose entire career experience is in management accounting and has never done a tax return in his life is qualified to prepare taxes?

    An Enrolled Agent has demonstrated knowledge in tax, and that is a credential to look for in a preparer. A tax lawyer is expensive overkill for tax preparation in most cases, although you will definitely want one if you’re going up against the IRS. But a CPA may have no tax knowledge whatsoever. A CPA could have passed the tax portion of the exam pre-1986, and never taken another tax class since. Make sure your tax preparer is qualified, but a four-year accounting degree and up-to-date tax education each year should be sufficient credentials to prepare a 1040.

    • class5tax says:

      True enough. I totally agree that a CPA designation doesn’t necessarily guarantee somebody has thorough tax knowledge…though I would imagine most CPA’s who pursued other accounting tracks aren’t going to suddenly dive into personal income tax prep (though in rare cases it could happen). But looking for those designations is a good place to start. Sure, there will be well qualified people who don’t have one of the designations I mentioned, like presumably yourself. But for somebody who’s not well versed in the tax field, it can be hard to distinguish without some kind of formal designation. I guess the question I would have for you is, why wouldn’t you take the EA exam? If you have the knowledge, the cost (in terms of both time and money) to take the EA exam is pretty minimal. Passing the exam sends potential clients a clear message that you’re competent according to an objective standard.

      Really though, my main point is that far, far too many people have their returns done (usually at big-name tax chains) by minimally trained individuals who are simply following a program. I’m sure you would agree that a significant number of preparers really have no business charging people to prepare their returns. I’m sure you would agree that somebody whose only training consists of a 60 contact-hour class the previous fall won’t offer the kind of professionalism that a client should expect when paying somebody hundreds of dollars to prepare their tax return.

  2. I’m not going for the EA because outside of the profession, no one knows what it is. The average person, when they see EA, thinks video games, not taxes. This is unfortunate and I wish there were better publicity for the designation. I am currently going for the CPA, because to the general public CPA = tax, but with a family and work it is taking me a while.

    So far there’s not a single thing in the CPA exam process that has made me a better tax preparer. I’ve learned lots of things about the SEC, and audit objectives, and macroeconomics and corporate mergers and every other thing under the sun, but tax is maybe 5% of the material covered, if that. The magic letters are not going to make me any better at taxes, just more marketable.

    With a former big tax chain guy in charge of the registered preparer process, I don’t expect it to do much to weed out the minimally-trained data entry brigade. There are many good non-lettered preparers, and a non-zero amount of not-so-good lettered ones. I would say referrals from friends, business associates and people you trust, and thoroughly interviewing preparers you’re thinking of hiring, are good ways to find a qualified tax person.

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