Monday, January 12, 2009


It is time for the annual presentation of one of my favorite posts of all time – the one in which I tell you that when it comes to choosing a tax professional “Don’t Assume”!

Do you remember the old episode of tv’s ODD COUPLE when Felix explains to Oscar what happens when you assume? We all must know by now that when you assume you make an ass of u (you) and me!

1) Do not assume that because a person has the initials “CPA” after his name he is an expert when it comes to federal and state income taxes.
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.
Whenever I get a new client I ask to see the last three (3) years’ tax returns, to make sure I do not miss any carry-forwards and to see if there are any errors that I could correct on an amended return. In my 37 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.
Many, many, many years ago (late 1970s) I was a “para-professional” in the Small Business Services Department of one of the then “Big Eight” accounting firms (Deloitte Haskins + Sells). While reviewing the prior year’s federal and state tax returns of a client whose current returns I was preparing I found a very obvious error on the New York State tax return that caused the client to pay much more tax than necessary. Under the firm’s policy, the return, which had been originally prepared by a CPA, was reviewed by his “manager” (also a CPA), and signed-off on by the head of the department (a CPA) and a member of the Tax Department (a CPA). Not one of these CPAs picked up the obvious error!

Needless to say I prepared an amended state return for the client. I have no doubt that the firm charged the client for my time to fix their error!

A student in one of the tax planning/preparation courses I taught at local adult schools, also many, many years ago, asked me what was the difference between a tax return prepared by a CPA and one prepared by me (I am obviously not a CPA). My answer was “at least $100.00″ (that number needs to be substantially adjusted for inflation!).

As I have posted a couple of times lately, I am sick and tired of the media, and the unwashed masses, assuming that only a CPA can prepare tax returns. This is a huge misconception – and it must be dispelled ASAP! I wish every article or report appearing in the next 4 months would replace the phrase, “check with your CPA” with “check with your tax preparer”!
FYI - the only initials that have any meaning when it comes to tax preparation are “EA” – Enrolled Agent (I am also not an “EA”). 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.

2) Also do not assume that H+R Block (or other “fast food” tax preparation chains such as Jackson Hewitt or Liberty) will charge a reduced, or even reasonable, fee for preparing your tax return.

When my mentor and I got a hold of the H+R Block fee schedule back in the late 1980s we were in complete shock. Henry and Richard ain’t cheap! In my opinion they are very expensive, especially considering the value of the service provided. They charge gourmet restaurant prices for fast food service! Plus they will attempt to squeeze even more money out of you by trying to push you into a usurious “Refund Anticipation Loan” or to make your IRA contribution to a Block-sponsored high-fee, low-yield investment that is practically guaranteed to lose money.

It appears that H+R has to charge outrageous fees in order to pay the costs of the many legal settlements and court judgments they have been faced with over the years. A new settlement was announced just recently (see last Saturday’s WHAT’S THE BUZZ post).
There are a multitude of reasons why you should not have your tax return prepared by representatives of Henry and Richard or other firms of their ilk. Their excessive fee is only one. Returns prepared by commercial chains, particularly H+R, are second to CPAs in terms of errors I have discovered on 1040s over the years. My mentor always said that he wished H+R Block would move next door to our office - we would make a fortune fixing their mistakes!
A couple of years ago the Government Accountability Office (GAO) conducted a study which resulted in a report to Congress titled “Paid Return Preparers: In a Limited Study, Chain Preparers Made Serious Errors”. The GAO sent undercover agents with two different tax scenarios to a total of 19 offices of 5 “fast-food” commercial tax chains, including H+R Block, in a metropolitan area. In only 2 instances was the correct refund calculated, but all 19 returns contained errors. A similar undercover operation was conducted last February and March by the office of the Treasury Inspector General for Tax Administration (TIGTA) with similar results.

To be perfectly fair, over the years I have come across CPAs who actually knew their “stuff” when it came to income taxes, and even some who charged somewhat reasonable fees. Several of my fellow tax bloggers have the initials CPA after their name, and, judging by their blogs, they certainly are very knowledgeable, quite savvy in fact, in federal income taxes. But in my experience these are the exception that proves the rule. And I am sure that there must be a couple of competent, professional and ethical H+R Block preparers out there somewhere – although you couldn’t prove it by me.
While it may actually be possible that the best tax preparer, at the best price, for your particular situation is either a CPA or an H+R Block employee, this is only because of the education, experience, ability, temperament, and other factors that are specific to that individual preparer and nothing whatsoever to do with their designation or employer.

Any comments?


Anonymous said...

Just the other day, at the post office while mailing out my letters, the postal worker (a real riot to say the least) stated that I didn’t do his taxes. Immediate response, I gave him a card. He handed it back saying “oh, you don’t want my return it is all screwed up and I owe the IRS lots”. My response was simple enough, “All my new clients are screwed up, that is how I get them hooked, I fix there problems.”

His response was that he had a CPA that was trying to fix the problem but not having very good luck at it. My response “That is nice, you have an account – someone skilled in the proper placement of debits and credits – working with a tax problem. Do you know what actual tax back ground your CPA has? Or is he just a glorified bookkeeper?”

He kind of laughed and ignored the comment. Several postal customers heard the conversation in it’s entirety and asked for my card. By the time I was done with my business there the postal worker asked for my card, stating that maybe he’d give me a shot at his return.

From reading your blog, you would have enjoyed the situation I think. My wife was there and I don’t think I am proclaiming all of the stories nuances. However as I was leaving the post office I immediately thought of your writings on the CPA doing taxes subject. I just had to chuckle.

Has for the fast food chains doing taxes. May you are correct (you usually are), there might be a few competent preparers there, but in my time preparing, I have not seen one yet that didn’t have an error.

Great post Robert.

Anonymous said...

Ok, you have convinced me that going to H&R is a bad idea.. I am not surprised; I have used them twice and both times was underwhelmed with their ability to advise me on lowering my tax liability.
You have also correctly pointed out that having initials after the name is no guarantee that a CPA knows what he or she is doing with my money.

What your post (good though it was) did not deliver was any advice on how to actually find someone who could be relied upon to help me pay the lowest amount of tax each year without risking imprisonment.

Robert D Flach said...


You are right!

Check out Thursday's (1/15/09) post.


california wills and trusts said...

I have to admit, when it comes to taxes I do assume.. Now that I have read you're article I will be more aware. Thanks so much for the useful tips and informative blog!