Up-to-the-minute advice, information, resources, and, on occasion, commentary on federal and New Jersey state income taxes, and the various New Jersey property tax rebate programs, and insights and observations on tax policy and professional tax practice, by 40-year veteran tax professional Robert D Flach.

Thursday, December 18, 2008

FINE WHINE

I have often discussed my “pet peeves” with clients here in the “pages” of THE WANDERING TAX PRO. Today I want to take issue with journalists and others who write about taxes.

From December through April the various media - online, print and broadcast - will bombard you with items that concern income taxes, discussing year-end moves in December and preparing your return from January through April. I can guarantee that more than half of these items will include a variation of the phrase “make sure to check with your CPA first” – instead of “be sure to check with your tax professional first”.

It really burns my toast when writers and reporters assume that only CPAs can prepare 1040s!

As I say each year in my annual post on choosing a tax preparer –

“The CPA designation means that a person took a very difficult test at the beginning of his/her career, possibly many, many years ago, only a small part of which dealt with federal income tax. It is no guarantee that he/she is current on federal and state tax law.”

.I also state, “Whenever I get a new client I ask to see his or her last three (3) years’ tax returns, to make sure I do not miss any carry forwards and, more important, to see if there are any errors that I could correct on an amended return. In my 35+ years of preparing tax returns I have found more mistakes on 1040s prepared by CPAs than by any other class of preparer, including the taxpayer himself.”

The initials CPA listed after a person’s name means that he/she is permitted by the American Institute of Certified Public Accountants to “certify” that the financial statements of an entity, prepared as a result of an audit of the entity by the CPA, are correct under current “generally accepted accounting principles” that have been published by such authorities as the Financial Accounting Standards Board.

There are CPAs that specialize in individual and/or business taxes, just as there are doctors who specialize in neurology or orthopedics. But not every CPA is automatically a tax expert, and CPAs are not the only category of tax preparers available to the taxpaying public.

To further quote my annual posting –

“The only initials that have any meaning when it comes to tax preparation are ‘EA’ - Enrolled Agent. The name is misleading. An EA is not an agent of the Internal Revenue Service, but a private tax professional who is "enrolled" to act as a taxpayer's "agent" in proceedings with the IRS and in Tax Court. To become an Enrolled Agent one must pass a difficult test that is 100% federal tax law. In order to maintain their enrolled status, EAs must have a mandatory number of continuing education credits in taxation each year.”

Your choice of a competent tax professional is not limited to a CPA or an EA. I am what the IRS considers an “unenrolled preparer”. I have not taken any test to verify my tax knowledge and, so far, am not required to register with any federal or state agency. Yet I consider myself to be just as competent a tax professional as any EA, and a more competent and experienced tax professional than many CPAs.

I learned my profession as an “apprentice” to another competent and experienced unenrolled preparer - I learned how to prepare 1040s by preparing 1040s. Each year I attend various conferences, conventions, seminars and workshops conducted my national and state tax preparer membership associations, and the Internal Revenue Service, to keep up-to-date on federal and state tax laws – usually earning an average of 40 CPE credits per year - as well as regularly reading various tax publications and reviewing daily many online tax-related blogs and other resources. There are many unenrolled preparers in private practice who are just like me.

Please be aware that I am not writing this post to solicit your business. I have more 1040 clients than I want and no longer accept any such clients.

I like to tell the following story when discussing CPAs –

A student in one of the tax planning/preparation courses I taught at local suburban adult schools years ago asked me what was the difference between a tax return prepared by a CPA and one prepared by me. My answer at the time was "at least $100.00". To apply today that number needs to be substantially adjusted for inflation!

While it may actually be possible that the best tax preparer, at the best price, for your particular situation is a CPA, this is only because of the education, experience, ability, temperament, and other factors that are specific to that individual preparer, and has nothing to do with the initials that appear after his/her name.

So to journalists and writers who may be reading this – please use the term “tax professional” instead of an automatic “CPA” when referring to a person who prepares tax returns for a living!

1 comment:

I would agree but want to point out that it isn’t just the press. I find many people I visit with that assume I am a CPA because I know so much 1040 tax information. Tax preparation isn’t an accounting of ones income but by no means is it accounting. Accounting by definition is “the system of recording and summarizing business and financial transactions and analyzing, verifying, and reporting the results ; also : the principles and procedures of accounting.” A tax preparer is simply filling out the paperwork required for reporting the results. The accountant is the one who is doing all the recording throughout the year, summarizing the transactions and verifying those results. We as prepares are knowledgeable in the rules/laws as how to report this to our government in order to complete returns that show the tax on the actual earnings of the individual. I have a degree in accounting. So what? I can assure everyone that this doesn’t help me do prepare a return. (I already knew how to add and subtract.)

Before contacting me with questions about how a blog post relates to your specific situation, please be aware that I do not give free tax advice to non-clients by e-mail, comment response, or phone. So don't waste your time and mine.