W-2’s and 1099s are in the mail, tax prep ads are everywhere and IRS opens for business on Monday, Jan. 29. What does that mean? It means identity theft season is underway and the bad guys are coming for your data.
Identity theft is one of the fastest-growing crimes in the world and the information on your tax return – legal name, birth date, social security number, etc. – is exactly what the bad guys want.
The IRS has finally acknowledged the problem and is convinced that its systems are secure so the bad guys are headed downstream – to big tax prep companies, tax preparers and individual taxpayers. To show how serious it is about the issue the Service now sponsors National Tax Security Awareness Week and offers helpful resources for taxpayers including dedicated space on irs.gov and new publication 4524 – Security Awareness for Taxpayers.
Keep data security in mind when you see one of those omnipresent offers for free tax preparation. Ask yourself why that credit website, big box retailer or local non-profit is suddenly in the tax prep business. What’s in it for them? Who are these people and what are they doing with your data? What security procedures do they have in place? Is it really worth saving a few bucks if it puts your data at risk?
When paying for tax preparation services ask questions as well. Verify credentials and find someone who has the skills and experience that best match your current situation. Don’t make assumptions about the guy behind the tax desk because the industry is not regulated. The only requirement to become a paid tax preparer is to request a free PTIN – Preparer Tax Identification Number – from the IRS and it means nothing.
Currently there are 753,997 active PTIN holders and roughly two thirds have zero professional credentials – TWO THIRDS! It doesn’t necessarily mean these folks don’t know what they’re doing, but they have not demonstrated any tax competency to federal or state regulators. They have not passed a background check, and they are not bound by any ethical or continuing education requirements. Things are not always as they appear.
The tax credentials to look for are Enrolled Agent (EA), Certified Public Accountant (CPA) and Attorney.
The Enrolled Agent credential is the most expensive license granted to a tax professional by the Treasury Department. To become an Enrolled Agent, one must pass a comprehensive three-part exam that covers individual tax returns, business tax returns and representation before the IRS. EA’s must have a PTIN, pass a tax compliance check and complete a minimum of 72 hours of continuing education every three years. EA’s generally have unlimited representation rights before the IRS and you can find one here: www.eaTax.org.
Certified Public Accountants and attorneys may also prepare income tax returns if they have a PTIN. They are licensed by their individual state boards and adhere to those standards and practices. Their specialized training and continuing education may or may not be in the field of taxation; many specialize in tax but others do not.
IRS also has an Annual Filing Season Program (AFSP). The AFSP, as the name indicates, is good for one year only. A tax preparer can participate in this program by obtaining a PTIN, taking 18 hours of continuing education and passing a 100-question quiz. While even IRS won’t call this a credential, it does recognize the efforts of uncredentialed preparers to at least stay up-to-date on what’s going on in tax world.
You can check out your tax preparer using IRS’s Directory of Federal Tax Return Preparers with Credentials and Select Qualifications: http://irs.treasury.gov/rpo/rpo.jsf.
Finally a few notes on a potential government shutdown during tax season. Congress, like most people, continues to struggle with the concept of budgeting. The federal government was shut down for a couple of days earlier this month and Congress found a solution to keep it open through Feb. 8, about the time IRS would start sending out the first tax refunds of the year.
If the government does shut down again, tax returns would continue to be due, they would continue to be processed and payments would continue to be received. Collections and criminal investigations would also continue. However, customer service would likely decline and refunds would not be released. To make it more fun, this may or may not happen and the feds may change the rules in the interim.
If this all sounds complicated, that’s because it is, and that’s why you need a tax professional in your corner — we keep up with all this stuff so you don’t have to.
To stay up-to-date on these and other changes follow us on Twitter (@TropicalTax). We are proud to be recognized by Forbes magazine as one of the 100 must-follow tax twitter accounts for 2018.
Jerry Gaddis is Founder & CEO of Tropical Tax Solutions, a full service firm headquartered in Key Largo offering Tax Consultation, Preparation and Representation services. Mr. Gaddis, a Dave Ramsey Endorsed Local Provider, is Enrolled to Practice Before the Internal Revenue Service and a Fellow in the National Tax Practice Institute. He earned degrees from the University of Florida and the Crummer Graduate School of Business at Rollins College in Winter Park, FL. He’s been in the tax business since 2004 and you can reach him at www.TropicalTax.com .