Is your Tax Accountant/Preparer Working for you or the IRS?

Too often tax preparers won’t allow taxpayers to take a position on a return unless there is absolutely no question that the toughest auditor will approve it.

The perception that your tax preparer might be working for the IRS is partly correct. Most tax preparers want to avoid paying penalties and being put on the IRS’s “Problem Preparer List”. So, too often, preparers won’t allow taxpayers to take a position on a return unless there is absolutely no question that the toughest auditor will approve it.

You need to find a team player. Here are five questions to ask when interviewing a potential tax preparer/accountant. These questions will help you decide whether he/she is going to work for the IRS or be your tax quarterback on your tax reduction, wealth-building team.

• What do you do between tax seasons? A traditional preparer does tax returns through April 15, then spends much of the summer and fall handling tax audits or working on non-tax matters. But a good tax accountant uses the time as a chance to identify financial opportunities the client might be missing, or problems that should be addressed.
• What do you do when a transaction is in a gray area of the tax code? A traditional tax preparer gives the benefit of the doubt to the IRS and tells the client that the position favorable to the client cannot be taken unless the law clearly is slanted toward the taxpayer. But a good tax preparer will present the full picture, describe the potential risks and rewards of each side, and let the client make the decision. As long as the tax preparer can support the choice well enough to avoid a preparer penalty, the decision should be the client. arrow What do you do when the IRS has issued a ruling (not a regulation) that is unfavorable to the client’s position but used questionable analysis? Most tax preparers will follow whatever guidance the IRS has issued. But a good tax preparer will advise you of the IRS’s position, give you an opinion of how sound the IRS’s reasoning is, and let you decide if the rewards of disagreeing with the IRS outweigh the risks. It is not unheard of for the courts to decide that the IRS’s rulings are wrong.
• What do you do when the taxpayer does not have documentation to support an item? Some tax preparers follow a simple rule of “no documentation, no tax break”. But a good tax preparer realizes that the law does not require documentation in all instances.
• Often, reasonable estimates or evidence other than documentation are acceptable. A tax preparer cannot, however, let you take a position if he has reason to suspect that the position is fraudulent. But losing or failing to keep documentation is not always an indication of fraud.
• What is your attitude toward audits? Some tax preparers believe that their goal is simply to avoid audits. That’s fine if that is the client’s goal as well. But this attitude leads many tax preparers to tell clients not to take home office deductions and other write-offs because those positions are “sure” to trigger an audit.

A good tax preparer realizes that audits are all part of the process. A few clients of a busy preparer are bound to be audited every year. An audit is not to be feared if the client has a solid position with good legal arguments and support.

You want a preparer/accountant who knows the limits of the IRS’s penalties, and who understands that the taxpayer, not the IRS, is the client.