Income Tax Returns Aren’t Toilet Paper

“When did the preparation of income taxes become a commodity item carrying the same importance as a roll of toilet paper? What’s next, buy computer time and prepare your return yourself? The business of preparing income taxes is an important calling, and your choice of an income tax preparer should neither be based solely on how big a refund they promise to get you, (which is illegal, by the way), nor by how little they charge. Instead, ask your preparer the following questions:”

Income tax returns are not toilet paper.

Today, while driving through my home city of Brooklyn, NY, I passed the office of a national income tax preparation franchise. They had a sign outside their office that read, “$50.00 off your income tax return today!!”

Get Your Toilet Paper Here!

When did the preparation of income taxes become a commodity item carrying the same importance as a roll of toilet paper? What’s next, buy computer time and prepare your return yourself? The business of preparing income taxes is an important calling, and your choice of an income tax preparer should neither be based solely on how big a refund they promise to get you, (which is illegal, by the way), nor by how little they charge. Instead, ask your preparer the following questions:
  • How many CPE classes did you attend last year?
  • Which, if any, professional organizations do they belong to?
  • What percentage of the returns you prepare are audited each year?
  • Do they have a Federal PTIN?
  • Do they have a New York State Tax Preparer Certificate of Registration?
  • If they must relocate their office, how will they inform you of their new address?
  • For how many years have they prepared income taxes?
  • Are they aware of the EITC Due Diligence rules?
  • Will you sign my income tax return?
  • What is their Privacy Policy regarding the protection of your personal information?
  • Do they make up their own itemized deductions so you will receive a larger refund?
  • How many times have they been cited for filing fraudulent income tax returns?

Bottom line, stop worrying about today’s sale on income tax preparation. I’d be more concerned about the skills and professional manner of who is preparing my return.

In addition to providing his clients and seminar attendees (many of whom become his clients), with insurance and income tax strategies and solutions, Eustace L. Greaves Jr.,  also prepares income tax returns for over 150 of his clients annually. To contact Eustace L. Greaves Jr., about his insurance and income tax services, feel free to call him at 718-783-2722, or by email to [email protected].

Income Tax Games Without A Bow | Brooklyn Covered

So, after dodging the aforementioned honest young lady for several days, I finally admitted that while I’d completed her return, I felt I was making a error somewhere. I just couldn’t understand why she suddenly owed an amount in the thousands when she usually only owed no more than $300.00. And that was considered a bad year.

After much conversation, she finally became very quiet. I just knew I’d lose her as a client. And then, the clouds of doubt and gloom parted when she said, “Mr. Greaves, I think I know why I owe so much.”

Playing Income Tax Games Will Leave You With Your Own Version Of The Hunger Games

So there I was, pacing around the office, the block, the neighborhood, Brooklyn. Trying to figure out why the heck I suddenly found myself unable to complete an income tax return which made sense. I mean, I’ve only been doing this for, what, about 20 years? Then, a propitious conversation with an honest young lady awakened me to the latest version of “Income Tax Games.”

When you’ve prepared someone’s income taxes for a while, you tend to learn “how they roll.” Some of my clients are homeowners who know exactly how many therms they use each month. With many, I’m just glad they put their bills and receipts in the envelope.

Too few contribute to 529’s and Roth IRA’s. Again, far too many fail to contribute the maximum to their employer-sponsored 401k’s. It always cracks me up when they say how hard it is to save now. Just wait until it’s time to retire, they’ll wish they’d done with less now to have more then.

So, when several of my clients suddenly owed amounts to the taxing authorities far and above what I’m accustomed to them owing, I wondered, (foolishly, in hindsight) what did I do wrong?

So, after dodging the aforementioned honest young lady for several days, (“Mr. Greaves, is my return done yet?”), I finally admitted that while I’d completed her return, I felt I was making an error somewhere. I just couldn’t understand why she suddenly owed an amount in the thousands when she usually only owed no more than $300.00. And that was a bad year.

After much conversation, she finally became very quiet. I just knew I’d lose her as a client. And then, the clouds of doubt and gloom parted when she said, “Mr. Greaves, I think I know why I owe so much.”

My only response was “Huh?”

“Mr. Greaves, a friend of mine on my job told me if I wanted to increase the amount of take-home pay each paycheck, all I had to do was increase the number of exemptions I claim for several months, and then go back to, in my particular case, Single, with one exemption.”

DING! DING! DING!

“Youngster, how many extra exemptions did you claim, when did you start claiming them, and, when did you stop claiming them?” I asked.

“I claimed Single, with 20 exemptions, starting in July, ending in November. Then I went back to Single, with one exemption.”

Thank the Maker I don’t have high blood pressure.

“And was the extra money good to you?”

“Man, yeah! I was getting paid!”

“And now?” I asked.

“I have to pay most of it back?”

“Sorry, I didn’t quite hear you.”

“I have to pay most of it back. But why?”

Then we got into a discussion about how the U. S. system of taxation is a pay-as-you-go system. As long as you’re making the necessary payments during the year, you shouldn’t end up owing at the end of the tax year.

She understands that now.

Then she mentioned how this young man, the financial genius who played the exemption game every year, still got a huge refund when he filed his taxes. Their pay was similar, they are both single, and give modest amounts to their churches. Neither one owns real estate, or has any entries for unreimbursed employee expenses. Just two young people with some interest, some stocks sold, and not much else.

I told her his preparer may be one of the biggest crooks out there, and it was probably just a matter of time before the IRS caught him for preparing fraudulent returns. And, when the preparer is caught preparing fraudulent returns, all of their clients will end up in IRS Examinations, and wind up owing a ton of money. With penalties and interest tacked on. 

“So what have we learned today?” I asked.

“To pay a bit each payday as I go along, and at the end of the year I won’t sing a sad song.”

“And will we be playing income tax games any longer?”

“Only if I have a death wish.”

I am revived. Income taxes make sense again. Back to the numbers.

Ten Reasons For A New Tax Preparer Review | Brooklyn Covered

You must remember your preparer possesses extremely sensitive information about you. Your Social Security Number, date of birth, your checking or saving account numbers, and employment and income information should be maintained in a secure site, safe from the dangers of identity theft. If your preparer relocates each year, you must ask them what precautions thy take to protect the information in your file. Find out who else has access to the information in your files and if so, for what purpose.

Make A Promise, Keep A Promise…

Let’s review why reasons one, two and three from last’s week’s post should make you really consider finding a new and competent Income Tax Preparer this year.

Reason Number One:

Back in 1991, I met an AT & T field technician referred to me by one of his co-workers for income tax preparation services. When the young man came to the office, he asked me to review a letter he’d received from the Audit Division of the New York State Department of Taxation and Finance.

First, let me tell you, it’s never good to get a letter from either them or the Internal Revenue Service.

The letter explained his tax preparer, a well-known Enrolled Agent, had pleaded guilty to charges of preparing fraudulent income tax returns. So she would avoid incarceration, she agreed to cooperate fully with the state taxing authorities during their investigation. She also agreed to relinquish her status as an Enrolled Agent, and gave up her ability to ever prepare income taxes again.

How did she cooperate? “Here are the keys to the office. These are the keys to the file cabinets. Here are the worksheets  I developed using fraudulent entries to generate the largest (though fraudulent) tax refunds possible for my clients.”

How simple was that?

Just to give you an idea of the scope of her transgressions, the Audit Department audited his New York State income taxes going back ten (10) years for this particular taxpayer. ( Yes I know, they say you only have to keep seven (7) years of income tax returns. There is, however, no statute of limitations for fraud.)

The amount he owed all by himself? Over $7,800.00.

And this was only what he owed New York State. He hadn’t been audited by the Internal Revenue Service yet.

And yes, each state and the IRS do share information about taxpayers.

And he wasn’t alone in his financial pain. She alone prepared the income tax returns for over 300 folks just like him.

Why Did She Do It?

She felt great pressure.

  1. The pressure of having to constantly justify her fees.
  2. The pressure of competition posed by other fraudulent income tax preparers trying to horn into her business with their own promises of large refunds.

 What were the lies she told? Taking large deductions on Schedule A for ‘work clothing’ purchases and maintenance costs.

Here’s a tax tip: If the clothing you wear to work can be worn anywhere else besides your job, you can deduct neither the cost of the clothing, nor its maintenance costs.

Who Qualifies?

So who can usually deduct uniform expenses? Police Officers, Firefighters, Sanitation workers and certain, specifically uniformed Transit Authority workers. Also, any article of clothing worn at work emblazoned with the name of the firm, and perhaps their name also.

Nothing you wear to church or your backyard barbecue.

What Else Did She Do?

She counseled married clients with children, to show different addresses so they’d qualify to file as Heads of Households, instead of Married Filing Jointly.*

Let’s Get to Reason Number 2

Your income tax preparer should be of stable character in all ways, including their business office.

Now, I am myself in the process of relocating my office (Gubernatorial candidate Jimmy McMillan was right when he said “The rent is too damn high.”) I have, however, occupied the same storefront since January, 1999.

You must remember your preparer possesses extremely sensitive information about you. Your Social Security Number, date of birth, your checking or saving account numbers, and employment and income information should be maintained in a secure site, safe from the dangers of identity theft. If your preparer relocates each year, you must ask them what precautions thy take to protect  the information in your file.  Find out who else has access to the information in your files and if so, for what purpose.

Make sure your preparer provides you with four (4) critical documents to review and sign. 

First, the Consent to Use Information and the Consent to Disclose Information forms. These forms are required by Section 7216 of the Internal Revenue Service code when the preparer of the income tax return offers other services to their clients. Without these documents, the preparer is legally enjoined from sharing the clients’ information with any other business entity.

Next, your preparer must give you a copy their firms’, Privacy Policy Statement, outlining what methods they will use to protect your information.

Lastly, your preparer, if they have a lick of good sense, will require you to review and sign a Tax Preparation Engagement Agreement.

No, it doesn’t mean you’re getting engaged. It outlines both the responsibilities of the taxpayer to provide all information the preparer enters into their income tax return. This means no fraudulent entries. It also covers areas relating to audits, privacy policy, fees, your copy of your return, preparation method and other services your preparer may offer you. (An example of this form is available on my website at www.insuremeeg.com/2011_Engagement_Agreement.html)

Are We There Yet?

We finally come to Reason Number 3. PTIN  and  NYPTRIN are not fancy acronyms for foreign cars. The first is the IRS’s Preparer Tax Identification Number. The second refers to New York State’s New York Tax Preparer Identification Number.

Who Must Have These Numbers?

Basically, any tax return preparer who prepares a substantial part of any return for compensation.  Ask your preparer what their numbers are. If they don’t know what you’re talking about, ask the preparer to give you your file, collect your paperwork, and leave the office as quickly as possible.

While PTINS have been around since 1999, New York State first required preparers to register in 2009 (and pay an annual  fee of $100.00 for the privilege. The IRS charges a fee of $64.95).

Why Did New York State and The IRS Do This? 

At last count, the United States Treasury determined there was a 315 billion dollar tax collection shortfall in 1985, 265 billion of which was directly attributable to taxpayers’ failure to file, and filing fraudulent returns. This new system will enable them to better identify and prosecute those abusing the system by flooding it with fraudulent returns. On the other, to catch those who prepare returns and fail or refuse to sign them. Why do they refuse? So they don’t have to declare the income. In fact, they often fail to  file their own income tax returns.

On several occasion last filing season, clients, thinking they’d save money, went to other preparers, only to be told the preparer had a “…problem with their New York State software. So tell you what, I’ll prepare and charge you for preparing your Federal return and you can go anywhere to get the NYS return done.”

Not with me. Sorry. I don’t do sloppy seconds.

Never have, never will.

No matter what, the federal return must always be done first. Many federal calculations then flow to the state return.

You come to my office and you’ll pay for both, because I must prepare both.  I wound up telling those clients to return to the other preparers and get their money back. And their files, too.

And You Thought This Was Going To Be Easy?

Next week we’ll review reasons numbers 4, 5 and 6. Until next time, wait for those w-2’s with bated breath.

Questions? Feel free to email me at [email protected]

* We’ll cover the subject of filing status in a future post.

Ten Reasons For A New Tax Preparer Review | Brooklyn Covered

You must remember your preparer possesses extremely sensitive information about you. Your Social Security Number, date of birth, your checking or saving account numbers, and employment and income information should be maintained in a secure site, safe from the dangers of identity theft. If your preparer relocates each year, you must ask them what precautions thy take to protect the information in your file. Find out who else has access to the information in your files and if so, for what purpose.

Make A Promise, Keep A Promise…

Let’s review why reasons one, two and three from last’s week’s post should make you really consider finding a new and competent Income Tax Preparer this year.

Reason Number One:

Back in 1991, I met an AT & T field technician referred to me by one of his co-workers for income tax preparation services. When the young man came to the office, he asked me to review a letter he’d received from the Audit Division of the New York State Department of Taxation and Finance.

First, let me tell you, it’s never good to get a letter from either them or the Internal Revenue Service.

The letter explained his tax preparer, a well-known Enrolled Agent, had pleaded guilty to charges of preparing fraudulent income tax returns. So she would avoid incarceration, she agreed to cooperate fully with the state taxing authorities during their investigation. She also agreed to relinquish her status as an Enrolled Agent, and gave up her ability to ever prepare income taxes again.

How did she cooperate? “Here are the keys to the office. These are the keys to the file cabinets. Here are the worksheets  I developed using fraudulent entries to generate the largest (though fraudulent) tax refunds possible for my clients.”

How simple was that?

Just to give you an idea of the scope of her transgressions, the Audit Department audited his New York State income taxes going back ten (10) years for this particular taxpayer. ( Yes I know, they say you only have to keep seven (7) years of income tax returns. There is, however, no statute of limitations for fraud.)

The amount he owed all by himself? Over $7,800.00.

And this was only what he owed New York State. He hadn’t been audited by the Internal Revenue Service yet.

And yes, each state and the IRS do share information about taxpayers.

And he wasn’t alone in his financial pain. She alone prepared the income tax returns for over 300 folks just like him.

Why Did She Do It?

She felt great pressure.

  1. The pressure of having to constantly justify her fees.
  2. The pressure of competition posed by other fraudulent income tax preparers trying to horn into her business with their own promises of large refunds.

 What were the lies she told? Taking large deductions on Schedule A for ‘work clothing’ purchases and maintenance costs.

Here’s a tax tip: If the clothing you wear to work can be worn anywhere else besides your job, you can deduct neither the cost of the clothing, nor its maintenance costs.

Who Qualifies?

So who can usually deduct uniform expenses? Police Officers, Firefighters, Sanitation workers and certain, specifically uniformed Transit Authority workers. Also, any article of clothing worn at work emblazoned with the name of the firm, and perhaps their name also.

Nothing you wear to church or your backyard barbecue.

What Else Did She Do?

She counseled married clients with children, to show different addresses so they’d qualify to file as Heads of Households, instead of Married Filing Jointly.*

Let’s Get to Reason Number 2

Your income tax preparer should be of stable character in all ways, including their business office.

Now, I am myself in the process of relocating my office (Gubernatorial candidate Jimmy McMillan was right when he said “The rent is too damn high.”) I have, however, occupied the same storefront since January, 1999.

You must remember your preparer possesses extremely sensitive information about you. Your Social Security Number, date of birth, your checking or saving account numbers, and employment and income information should be maintained in a secure site, safe from the dangers of identity theft. If your preparer relocates each year, you must ask them what precautions thy take to protect  the information in your file.  Find out who else has access to the information in your files and if so, for what purpose.

Make sure your preparer provides you with four (4) critical documents to review and sign. 

First, the Consent to Use Information and the Consent to Disclose Information forms. These forms are required by Section 7216 of the Internal Revenue Service code when the preparer of the income tax return offers other services to their clients. Without these documents, the preparer is legally enjoined from sharing the clients’ information with any other business entity.

Next, your preparer must give you a copy their firms’, Privacy Policy Statement, outlining what methods they will use to protect your information.

Lastly, your preparer, if they have a lick of good sense, will require you to review and sign a Tax Preparation Engagement Agreement.

No, it doesn’t mean you’re getting engaged. It outlines both the responsibilities of the taxpayer to provide all information the preparer enters into their income tax return. This means no fraudulent entries. It also covers areas relating to audits, privacy policy, fees, your copy of your return, preparation method and other services your preparer may offer you. (An example of this form is available on my website at www.insuremeeg.com/2011_Engagement_Agreement.html)

Are We There Yet?

We finally come to Reason Number 3. PTIN  and  NYPTRIN are not fancy acronyms for foreign cars. The first is the IRS’s Preparer Tax Identification Number. The second refers to New York State’s New York Tax Preparer Identification Number.

Who Must Have These Numbers?

Basically, any tax return preparer who prepares a substantial part of any return for compensation.  Ask your preparer what their numbers are. If they don’t know what you’re talking about, ask the preparer to give you your file, collect your paperwork, and leave the office as quickly as possible.

While PTINS have been around since 1999, New York State first required preparers to register in 2009 (and pay an annual  fee of $100.00 for the privilege. The IRS charges a fee of $64.95).

Why Did New York State and The IRS Do This? 

At last count, the United States Treasury determined there was a 315 billion dollar tax collection shortfall in 1985, 265 billion of which was directly attributable to taxpayers’ failure to file, and filing fraudulent returns. This new system will enable them to better identify and prosecute those abusing the system by flooding it with fraudulent returns. On the other, to catch those who prepare returns and fail or refuse to sign them. Why do they refuse? So they don’t have to declare the income. In fact, they often fail to  file their own income tax returns.

On several occasion last filing season, clients, thinking they’d save money, went to other preparers, only to be told the preparer had a “…problem with their New York State software. So tell you what, I’ll prepare and charge you for preparing your Federal return and you can go anywhere to get the NYS return done.”

Not with me. Sorry. I don’t do sloppy seconds.

Never have, never will.

No matter what, the federal return must always be done first. Many federal calculations then flow to the state return.

You come to my office and you’ll pay for both, because I must prepare both.  I wound up telling those clients to return to the other preparers and get their money back. And their files, too.

And You Thought This Was Going To Be Easy?

Next week we’ll review reasons numbers 4, 5 and 6. Until next time, wait for those w-2’s with bated breath.

Questions? Feel free to email me at [email protected]

* We’ll cover the subject of filing status in a future post.

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