The Responsibilities of a Tax Preparer

Robert Flach has published two excellent posts on the responsibilities of a preparer (post 1, post 2). In general, I agree with everything that Mr. Flach states.

Some excerpts:

“In order to make sure that you pay the absolute least amount of federal and state income taxes each year I need complete and accurate information from you at tax time.

This means I need specific numbers for deductions you are claiming. ‘Claim the maximum’ or ‘Whatever I am allowed’ or ‘Same as last year’ don’t cut it. The maximum is what you actually paid – and you are allowed what you actually paid! … I cannot make up numbers for you– I need you to tell me ‘$1023.50’ or ‘$20.00 per week for 50 weeks’ or ‘4638 miles’! …

It is not my responsibility to personally verify all the numbers or statements given to me by a client. I have no obligation, legal or ethical, to audit your return. This is up to the IRS, if they so choose. I am simply preparing the return, to the best of my ability, “based on information supplied by the client”.

Tax professionals are not agents of the IRS. Instead, we’re here to find every legitimate means of saving you money on your taxes. That said, Mr. Flach notes that if he obtains “direct personal knowledge” of facts contrary to what he’s been told (by a taxpayer), he must use the correct numbers (what he knows) rather than what he’s been told by the client. I agree with Mr. Flach on this.

One point where I disagree with Mr. Flach is the amount of time you should hold onto your documentation. He says, “You are responsible for keeping all of the necessary documentation of the income and deductions claimed on these returns for at least three (3) years.” I believe you should hold onto all documentation for a minimum of six years.

There are two reasons why I believe this. First, while the IRS statute of limitations in normal situations is three years from the due date of the return or date of filing (whichever is later), many states have longer statutes. California’s is four years, for example. Second, if you are accused of fraud the statute of limitations runs six years. Yes, the IRS has the burden of proof for fraud, but if you are accused of fraud wouldn’t you like to have your back-up information available?

Finally, I’m a member of the National Association of Enrolled Agents and the California Society of Enrolled Agents. I’m bound by the NAEA’s Code of Ethics and Rules of Professional Conduct. (Mr. Flach is a member of the National Association of Tax Professionals, and is bound by a similar code of ethics.) One reason why I have every client sign an Engagement Letter is so that they understand my responsibilities and they understand their responsibilities in preparing their tax returns.

Overall, Mr. Flach’s series on the obligations of a tax professional is excellent. Every so often I report on Bozo tax preparers who skirt the law. They cause pain to everyone in my profession. Luckily, most members of my profession are ethical and are looking out for the interests of the client.


One Response to “The Responsibilities of a Tax Preparer”

  1. RF-

    A sincere thank you for the kind words and the reference to my post series.

    You do have a good point about saving copies of documentation for at least 6 years. I actually suggest that the copy of the Form 1040 and attached schedules and forms should be kept forever, if for nothing else then as a record of personal financial history. My client letter merely stated the legal minimum holding period.

    And I do agree that it is a good idea to have clients sign an Engagement Letter.

    Thanks again!