Taxpayer Beware

Tax Preparers' Legal Responsibilities to You

January 26, 2021 California Tax Education Council Season 1 Episode 1
Taxpayer Beware
Tax Preparers' Legal Responsibilities to You
Show Notes Transcript

So you hired a tax preparer. They’re the pro. You paid them a fee  - but what happens if there’s a mistake? Or worse yet, fraud.

Brandon Chanley, Chair of the California Tax Education Council (CTEC), chats with Richard Ernst, a former prosecutor for New York State's Attorney General.

Richard provides tales from the past about issues he's seen with tax preparers and how you can avoid fraud.

In California, only an attorney, CPA, CTEC registered tax preparer or IRS enrolled agent can do your taxes for a fee. Anyone who is preparing tax returns without one of those four legal designations is breaking state law. And there are thousands doing just that.

To find or verify the legal status of a tax preparer, visit ctec.org.

Speaker 1:

Thank you for downloading taxpayer. Be aware this podcast was created by the California tax education council. A non-profit organization required by the state of California to protect you against fraud and help you find a legally qualified tax professional. There are 40,000 tax preparers registered with the council. Also known as C RTPs, C R TPS are one of only four tax professionals approved by the state to do your taxes. Anyone doing business who hasn't met state requirements is breaking the law and there are thousands doing just that. This is episode one tax preparers legal responsibilities to you. Now here's your host, Brandon Chanley .

Speaker 2:

My name is Brandon channeling chair of the California tax education council, or also referred to as Ctech . So you hear the word SciTech quite a bit in our podcast. Uh , SciTech was created by the state to basically do one task , uh , to protect taxpayers against fraudulent tax preparers. So anyone who charges a fee to do your taxes must be either a Ctech registered. And if they're not, they must be an attorney, a CPA or an enrolled agent. So with that being said, I'll tell you we have a subject matter expert with us today. Um, I I'm definitely gonna have to read his profile here because it is super impressive. So joining us today is Richard Ernst. Richard was a former prosecutor of tax and other white collar crimes with the New York state attorney General's office. He was also deputy commissioner with the New York state department of taxation and finance, where he regulated all New York state tax preparers. And he's currently a Ctech board member and we're lucky to have him. Um , man, I bet Richard has some , some interesting stories we could talk about with those, the white collar crimes, but that's probably for another podcast. So welcome, welcome Richard. And thank you for having me. Um, you know, there's a word, I think that for the, for the tax paying public, that's out doing a, or having someone do their tax return, I'm sure there's a word that strikes fear in all of them . And you know , that that word starts with an a in the words product. So I'm sure when someone hears, Oh, you're being audited by the IRS, that's probably a terrifying conversation, right? It is. But I think if you, instead of thinking of the word audit, you think about the IRS is just requesting more information. And I think that that takes a lot of fear out of the whole audit process. Um, so what , what's kind of the ethical duty of the tax preparer in that scenario, what , you know , what , what kind of response should be , or what should they be doing when they're, when they're helping you with that? We all like to assume that the person we're dealing with is ethical. And we also like to assume that all tax preparers are ethical, but not always the case,

Speaker 3:

You know, and ethical tax preparer will correct the return if there was a mistake and it was their fault, but let's say that's not the case, the tax preparer for one reason or another, isn't taking responsibility for their mistake. Many tax preparers will have errors and admissions insurance for cases like this. They're not required by law to have, this is strictly voluntary, but it's meant to protect them, not the client. On the flip side, California, CRT PS are the only professionals required by law to have a $5,000 tax prepare a surety bond. So if there was a mistake on the return, that was the preparer as full, the client can make a claim against the tax preparers bond. And that is why customers should remember that prior to preparing the return. The tax preparer must provide in writing to the client, the tax preparers name, address, telephone number, and evidence of compliance with the bonding requirement, including the bond number. Now, unlike errors and admissions insurance, the bond is meant to protect the taxpayer against Ford , not the tax professional, even though ultimately it's the tax professional who pays for it.

Speaker 2:

So definitely, you know , something to think about for those that are listening there, that the final tax return in the state of California, and you're hiring someone in the state of California do your return. I think that's, you know, like we said, taxpayer to where , but that , that shows you that the, the CRTP registered in the others that are doing it professionally , um, you know, SciTech is making sure they have the things that are required for them to protect you as the taxpayer . So you're protected. So I guess it's a great thing to talk about there. Um, so you also mentioned that , you know , and I just want to throw this out there from the SciTech side of it, about the bond information. So if they, if they happen to not tell you what their bond number is, you can get that from the tech website and we can get that information to cause it is a requirement for them to register with the state. We need their bond information when that goes into their file. So we'd be able to pull that for you just in case. Okay. Um , let's switch topics and let's , uh , we're not really switch topics, but let's, let's talk about another item here. I'm just kinda throwing out all the scary words today. So let's throw out another big, scary word fraud. So what , what constitutes fraud in your opinion, when we're talking about texts and videos ,

Speaker 3:

You know, every time there is incorrect information or a mistake on a return doesn't mean it's fraud. It could be not understanding the tax law, not complying with the tax law or intentionally violating the tax law. So we're going to put aside the first two, not understanding or not , um, enforcing the particular tax law and go right to the third one where a preparer intentionally does something that we'll talk about. We talk about fraud , um , and there are a few typical signs that are occur every year. Um, the first one is the tax preparers nuts signing your tax return. If that happens, first of all, it's a requirement that the tax preparer sign the tax return, but you should ask yourself, why would a tax preparer who charged a fee to prepare your return, refuse to sign the return. Now the tax returns per P a signature, the tax preparer signature, excuse me, can be typed or handwritten on the return. The tax preparer must have an IRS PTEN and included on the return next to their name. And this number is how the IRS monitors, the returns that an individual prepares for their clients. Also, if the preparer signs the return of self prepared, that's a big red flag because self means you see , you must think, well, if they market a self prepared, why did they hide the fact that they prepare the return? And another red flag is when they advertise guaranteed refunds. In this case, don't just walk away, run away , no tax professional , no matter how good they are, can possibly make such a promise without reviewing your information. A simple rule of thumb is if their focus is promising refunds or wanting any part of your refund, like I said, walk away. If their pitches, I got you $5,000 back. So I should get a percentage of , of that. Refund is compensation. This is a violation of their law. Your refund is yours. It should never be part of their fees. It should also never be deposited to the tax professionals bank account. When I was with New York, I heard many instances of preparers telling their clients, you know what? You live in a bad neighborhood. The mailboxes are constantly broken into why don't you have the refund deposited into my account. Then I will cut you a check for your refund. Let me tell you this never turns out well for the customer.

Speaker 2:

Right ? They get that little wink wink in there too, right? It's Oh , trust me on this. Yeah . That's that's great. Richard. I like the fact that if you, if you feel this is happening during a tax situation, and you know , when you're paying a professional, just like you said, run away , get out of there. You know, just say, I don't feel comfortable in this scenario, get out of there. And you know , there are resources in the state of California, like the franchise tax board and things of that nature, there will help, you know , you could report this person as well and get it back to SciTech and our groups so we can have them investigate. Cause that's a big red flag and they're doing project thing . So sorry to interrupt you there. No , no , no. Also, if the tax preparer wants to take

Speaker 3:

Questionable credit or not include all of your income and tells you what's the worst that can happen, the item will be disallowed. This is not the worst that can happen. When I was with the New York state AIG , there was a preparer in Brooklyn who, every single client, he took the farming credit for now. I don't know how often you've been to Brooklyn. They're on too many farms in Brooklyn,

Speaker 2:

Urban farming going on there, I guess

Speaker 3:

Tell you that a tree grows in Brooklyn, but everyone doesn't get a credit for taking care of that tree. That just doesn't happen. No. So when I saw that, I reached out to the preparer and say , you know, what's going on here? Not all your clients can be farmers in the middle of Brooklyn. And he said, well, we misunderstood. We thought if you had a backyard to get a , from farming credit and we ultimately worked it out, but here it is, I had to investigate. I had to reach out to him. He had to respond. He was nervous waiting for my response. So if you don't know something, ask, ask another preparer, ask the IRS, ask the state asks someone who's more knowledgeable than you. Don't just say let's put it on the return. And then if it gets disallowed, it gets disallowed and everything on your return has to make sense. If something doesn't appear to make sense, ask people tend to freeze up the thought of asking questions, but you know the truth. That is your situation that's reflected on the return. You know, if you're married or how many children you have your income and your basic deductions, it really sounds simple. But things like dependence and incorrect, social security numbers taking deductions, that seem way out of Louisiana, usually where fraud happens. It's right there in plain sight as questions, a good tax preparer loves talking about the tax law. They really, really do.

Speaker 2:

That's . That's great. Yeah. You're you hit the nail on the head there. I mean, if I'm paying someone to do my tax return, it's a , it's a mutual event. You know , it's not just in a vacuum where they're doing it and saying, okay, Brina , here you go. This is what you're going to get this year. You know ,

Speaker 3:

Turn has taken on a life of its own. It used to just be a document. You prepare to report your income and expenses. You may owe a little money. You may not all a little money. You know, if you want to get a mortgage, what do you need? You need to show a tax return. If your kid wants to go to college or you want to go to college and you want to apply for any sort of funding, they asked to see the tax return until recently the tax return reported. If you had health insurance. So an incorrect tax return really just doesn't affect the way you interact with the IRS or the state. It could really affect many different parts of your life. So it's really, really critical that the tax return be correct.

Speaker 2:

Right. Right. And that's, that's what we want to rush, you know, rest assured and Richard's talk about taxpayers , have legal responsibilities. And, you know, I hope that you've heard some of those legal responsibilities that we've talked about today. And, you know , I know the importance of getting someone that is registered or has taken the credits and the things needed to be able to do your tax return and do it right. You know, and keep you from some of those scary words we talked about like audit and fraud , um , things of that nature. So, I mean, just keeping your eyes open and knowing what's going on and understanding that it's their responsibility to present a good tax return to the IRS that was done with your help , you know, nothing against your brother or sister that may be doing your return, but you know, do they have all these qualifications to be able to do that? Uh , something you want to ask yourself for sure. So , um, Richard, I'll tell you what this , I think this has been a lot of fun and you can get some good, useful information out of there. Um, hopefully, hopefully will , people will take notice and they can go back and jot down some of the key things to look at them before they need to run away. That's a scenario where they need to run out of the office. I think we've , we've given them some good tips. And if there's anything you've heard today and you have more questions or you want to get more information about it, you can always go to [inaudible] dot org. Um, tons of great information there about the state of California and see our TPS . Uh , so that's C team.org . Thank you very much. Thanks for your time. Hope everyone has a great day.

Speaker 4:

[inaudible] .