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.