I think a lot of us have, to some degree, assumed that a "professional" with a title, a great office and a polished appearance knows what they are doing, and is doing what is in our best interest. Unfortunately, that is not always the case.
Especially in this economy, we should put some time and effort into choosing who we will trust with our money. I am a CPA, licensed in Maryland, and would like to share a few "horror" stories of how intelligent people have been unwittingly misinformed at best, or intentionally misled at worst. Either way, you lose.
A new tax client called and told me he owes the IRS approximately $12,000. He had called a tax attorney who guaranteed him that if he gave the tax attorney $2,500 he could have the debt forgiven by filing an Offer in Compromise with the IRS. In other words, the $2,500 would pay the tax attorney's fees and the IRS in full. This definitely falls under the "too good to be true" category. The following is an excerpt about Offers in Compromise from the IRS web site: "This program serves an important purpose for a select group of taxpayers. But we are increasingly concerned about unscrupulous promoters charging excessive fees to taxpayers who have no chance of meeting the program's requirements," said IRS Commissioner Mark W. Everson. "We urge taxpayers not to be duped by high-priced promises."
Another client, at the urging of her tax preparer, had filed a return with inflated expenses. She was audited and could not provide documentation for the "extra" expenses. The IRS disallowed the expenses and recalculated her tax due. She owed the additional tax, penalties, and interest. A tax preparer "letting" you deduct expenses that are not deductible to help save you money is a big red flag. A lot of people are under the misconception if they pay someone to prepare their return, especially a CPA, that the preparer is somehow responsible for any additional penalties, interest, and tax due if the IRS discovers the "errors" on the return. YOU are responsible for all penalties, interest, and tax due. The preparer may be in some trouble if they intentionally misrepresented your income, expenses, filing status, etc. to the IRS, but you will pay the bill. Still not convinced, if tax preparers were responsible for every one of their clients' additional tax, penalties, and interest, how many would still be in business? Although some tax preparers will offer to pay your penalties and interest if they made a mistake on your return, they are not required to pay.
Yet another client, a sole proprietor, was informed by a large, reputable payroll company sales representative that she needed to start paying herself a payroll check as soon as her new business started to turn a profit. Thinking she was "doing the right thing" she started paying the payroll company to issue her a payroll check each month and to file her federal and state payroll tax reports. When I informed her that she cannot deduct payroll expense for herself because she is a sole proprietor (this is not allowed by the IRS), she immediately called the payroll company to cancel her services. When she told the man who had been assigned her account to stop the services because payroll checks to a sole proprietor are not a deductible business expense, he said "That sounds about right." This client was using my services before she started using the payroll company. She could have saved herself some time and money by asking me before she started the payroll service.
Regrettably, the list of "horror" stories goes on and on and on. The bottom line: use some good old common sense, do a little research, and don't be afraid to ask questions.
Especially in this economy, we should put some time and effort into choosing who we will trust with our money. I am a CPA, licensed in Maryland, and would like to share a few "horror" stories of how intelligent people have been unwittingly misinformed at best, or intentionally misled at worst. Either way, you lose.
A new tax client called and told me he owes the IRS approximately $12,000. He had called a tax attorney who guaranteed him that if he gave the tax attorney $2,500 he could have the debt forgiven by filing an Offer in Compromise with the IRS. In other words, the $2,500 would pay the tax attorney's fees and the IRS in full. This definitely falls under the "too good to be true" category. The following is an excerpt about Offers in Compromise from the IRS web site: "This program serves an important purpose for a select group of taxpayers. But we are increasingly concerned about unscrupulous promoters charging excessive fees to taxpayers who have no chance of meeting the program's requirements," said IRS Commissioner Mark W. Everson. "We urge taxpayers not to be duped by high-priced promises."
Another client, at the urging of her tax preparer, had filed a return with inflated expenses. She was audited and could not provide documentation for the "extra" expenses. The IRS disallowed the expenses and recalculated her tax due. She owed the additional tax, penalties, and interest. A tax preparer "letting" you deduct expenses that are not deductible to help save you money is a big red flag. A lot of people are under the misconception if they pay someone to prepare their return, especially a CPA, that the preparer is somehow responsible for any additional penalties, interest, and tax due if the IRS discovers the "errors" on the return. YOU are responsible for all penalties, interest, and tax due. The preparer may be in some trouble if they intentionally misrepresented your income, expenses, filing status, etc. to the IRS, but you will pay the bill. Still not convinced, if tax preparers were responsible for every one of their clients' additional tax, penalties, and interest, how many would still be in business? Although some tax preparers will offer to pay your penalties and interest if they made a mistake on your return, they are not required to pay.
Yet another client, a sole proprietor, was informed by a large, reputable payroll company sales representative that she needed to start paying herself a payroll check as soon as her new business started to turn a profit. Thinking she was "doing the right thing" she started paying the payroll company to issue her a payroll check each month and to file her federal and state payroll tax reports. When I informed her that she cannot deduct payroll expense for herself because she is a sole proprietor (this is not allowed by the IRS), she immediately called the payroll company to cancel her services. When she told the man who had been assigned her account to stop the services because payroll checks to a sole proprietor are not a deductible business expense, he said "That sounds about right." This client was using my services before she started using the payroll company. She could have saved herself some time and money by asking me before she started the payroll service.
Regrettably, the list of "horror" stories goes on and on and on. The bottom line: use some good old common sense, do a little research, and don't be afraid to ask questions.
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