Prep talks: Reassuring clients about crooked preparers

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More than half of U.S. taxpayers use a paid preparer according to the IRS – the same agency that year after year ranks preparer fraud high on its annual list of headline tax crimes. What to tell jittery clients?

“In Connecticut, we’ve had some arrests of fraudulent preparers and clients bring that up in passing. In the past 18 years, no one has ever questioned my standing but often wonder why and how people do it,” said Morris Armstrong, an Enrolled Agent and registered investment advisor with Armstrong Financial Strategies, in Cheshire, Connecticut. “Signs that I tell them may be a trigger are very high refunds, very high fees and of course their telling you what you should deduct.”

“Many clients share stories about friends and relatives getting screwed by tax professionals, both licensed and unlicensed alike. I reassure clients by inviting them into my house, showing them how I live and that I chose to use my tax knowledge protecting others,” said John Dundon, an EA and president of Taxpayer Advocacy Services in Englewood, Colo.

“Over the years, I’ve had new clients come to me, and when I compare the current year with the prior year there are major differences, especially with Schedule A deductions,” said preparer Andrew Piernock at Piernock Accounting and Tax Services in Philadelphia. “I explain to the new client that the prior year has major issues and in the event of an audit they should have the backup to support those deductions. I reassure them that I do everything by the book and I am not putting their return and my business and reputation in jeopardy.”

Someone else’s mess

Preparers report that a sometimes-small but growing number of clients express concern and that new preparers must often first clean up messes before assuring taxpayers.

“The taxpayer pays them a high preparation fee, gets a big refund, but often has to pay it back with interest and penalties. I’ve found these crooked preparers often prey on low-income and minority populations,” said Patrick O’Hara, an EA with the Tax Alternative Group in Poughkeepsie, N.Y. “It’s unfortunate that taxpayers seem to have more confidence in the unscrupulous preparer who promises big refunds than the licensed professional who says, ‘That’s not allowed…’”

“I had a representation client come to me after dealing with an abusive preparer. In fact, he went so far as to send out letters telling his clients that the IRS may come calling and he did nothing more than put what they told him on the return,” recalled Helen O’Planick, an EA at HELJAN Associates in Manchester, Pennsylvania. “Well, mileage was commuting and expenses were not deductible – pantyhose and manicures for a teacher? Did he tell them that? No.”

“I haven’t had much experience with this issue in the past [but] during this past tax season we took on a new client who never got their refund last year and their old preparer just isn’t being straightforward,” said Marilyn Heller Ayers, a CPA in Brick, N.J. “They’re an older couple living on a fixed income and the refund was nearly $2,500.”

Is the blame always entirely the former preparer’s? “While I feel sorry for the taxpayers who have been impacted, I also suspect that in many cases that they’re complicit. You know that you only have two kids and that you don’t have a business – let alone a business that generates a $20,000 loss,” Armstrong said.

No ‘coordinated strategy’

The Treasury Inspector General for Tax Administration recently reported ( that the IRS lacks a coordinated strategy to deal with unregulated tax preparers. The report pointed out that because IRS efforts to regulate preparers were invalidated by litigation, preparers are generally unregulated and they can prepare returns with no formal training or education -- not to mention extensive evidence that some prey on innocent taxpayers.

“A few years ago a tax preparer falsified deductions and embezzled funds of clients. We inherited a few of her clients, so we had first-hand knowledge from prior returns,” said preparer Eric Hansen in Omaha, Nebraska. “Her story was locally publicized and the IRS was informed. The IRS did nothing. Hard to reassure clients when the IRS amazingly allows this preparer to continue doing tax returns.”

The TIGTA report comes amid a fresh legislative effort to regulate preparers: the bipartisan Protecting Taxpayers Act, which includes a number of reforms to the IRS, including statutory authority to regulate paid preparers “in a balanced way.”

Some preparers try to educate clients. “I tell everyone every time and include scam warnings in Facebook promo material and still some don’t get the message. But most are saying they know about it,” said Paul Knapp of Exact Income Tax Service, in Santa Fe.

Kathryn Morgan, an EA at Puzzled by Taxes in Haughton, Louisiana, clarifies for clients the difference between a tax preparer and a tax professional. “Tax preparer: someone who prepares an income tax return for another,” she said. “Tax professional: a trained professional who maintains continuous education to update their knowledge and then uses that knowledge to assist a taxpayer in completing a thorough and accurate income tax return resulting in the lowest legal tax liability for the taxpayer.”

Kerry Freeman, an EA at Freeman Income Tax Service in Anthem, Arizona, has every client sign an engagement letter in which he explains “not only the client’s responsibility but my protections for them and the remedies afforded them,” he said.


“When they tell me about crooked tax preparers, they always say that’s why they come to me because they trust me,” said Kathy Hawboldt of Hawboldt’s Tax Service, in Louisville, Kentucky.

“They’re usually telling us that they are glad they don’t have to worry.” added Marilyn Meredith at Michigan-based Meredith Tax Service.

“Several of my clients have personal experiences with either crooked preparers or ones that just really don’t know what they’re doing. I think the work that I do and my reputation is reassurance for them,” said EA Laurie Ziegler at Sass Accounting in Saukville, Wisconsin. “About 80 percent of my new clients come from referrals. Current clients wouldn’t be sending their friends and/or relatives to me if they didn’t trust me themselves.”

“I prepare approximately 450 returns a year. This is my 19th year, and I can safely say that I’ve only heard that concern from less than 10 clients,” said Frederick Reynolds, an EA in Utica, N.Y. “I put those with a concern at ease by telling them that I work for a reputable national tax company and that I’m an EA and am held to high preparation standards.”

“So the client asked me how she knew she could trust me. I explained that I was licensed by the IRS and was in business 15 years (at that time). And I had a good rep with the IRS. That worked, and I’m still doing her taxes eight years later. And yes, we did fix the issue with the bad preparer,” Pennsylvania’s O’Planick said.

Is that enough?

“Anyone can do illegal things and it doesn’t matter if you are a non-enrolled preparer, a CPA or an EA,” Armstrong added. “Those measure education achievements and hold you to various standards. The best measure is someone who is full-time and has been around for quite a few years. Credentials don’t make anyone ethical. It’s much deeper than that.”

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