While a reported 60 percent of taxpayers use a paid preparer to complete their tax returns, there are still many individual filers who prepare their own returns using tax prep software. In two separate instances in 2006, tax courts ruled against filers who tried to blame their erroneous returns on the software they used. Just how safe is it to entrust your taxes to a software package?
“The important thing to keep in mind is that the taxpayer is ultimately responsible for submitting a timely and correct return, whether the preparer comes out of a penthouse office or a cardboard box,” said Betsey Buckingham, EA, an enrolled agent in Troy, OH, and board member of the National Association of Enrolled Agents (NAEA).
Recently, Consumer Reports staged a contest of usability and accuracy between the two leading tax software packages. Employing profiles of four hypothetical families endowed with typical taxpayer issues, a Consumer Reports Money Adviser staffer entered the information into each
of the software programs and evaluated each for its ease of use. The accuracy of the resulting tax forms was evaluated by an enrolled agent, a tax practitioner who is licensed by the U.S. Department of the Treasury.
Results showed that neither product was perfect in evaluating the data, particularly in more complicated tax situations.
“The decision to use tax prep software or hire a preparer is not one to be taken lightly,” said Buckingham. “Taxpayers need to consider what they’ll do if they wind up getting audited. Only an enrolled agent, certified public accountant or attorney may represent a taxpayer before all administrative levels of the IRS for appeals, audits or collections.
While some might not mind going it alone, most people feel better when they have a licensed preparer to represent them”
Ultimately, it all comes down to the fine print above the signature line on your tax return: “Under penalty of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and
complete.” In other words, the buck stops here!
If you need assistance finding a licensed tax preparer in your area, go to www.naea.org and click on “Find an Enrolled Agent.” Unlike attorneys and CPAs, who may or may not choose to specialize in taxes, all enrolled agents (EAs) specialize in taxation and may only receive the EA
designation after demonstrating their competence before the IRS.