A Do-It-Yourself Peer Review for Tax Preparers

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To read more articles by Eva Rosenberg, MBA, EA, click here and check out the Talk to TaxMama archive.

How do small tax prep firms handle peer review? If you're the sole professional, whom can you rely on to cast a second glance on your work? People I have spoken to over the years have a variety of solutions.

One tax attorney tells me that she pays another tax attorney to review all her work before it goes out. And that attorney pays her to perform the same service for her office in return. An EA told me that she hires another EA during tax season for the sole purpose of reviewing her returns before they leave the office.

Of course, in these sharing situations, be sure to have your client sign a consent form, either as part of your engagement letter, or as a separate document.

What do I do? I hired a really good assistant many long years ago. I created a tax return checklist for her to use, and modified it to include the kind of errors I tend to make: entering Social Security withholding into the income tax field, transposing Social Security numbers, not entering a child. Feel free to create your own checklist from my version.

At first, I sat with her and trained her about the interrelationships between forms and entries on the tax return. Pretty soon, she was noticing relations between pages and data that I had not taught her. Lulu was catching mistakes and bringing them to my attention. At that point, I thought she was ready for more. So I brought her into my EA Exam Review class—and she passed all the exams. (That was back when you had to spend two days, taking four exams, once a year.)

Now, she reviews my work, and I review her work. No tax return leaves our office without a second pair of eyes. And we never complete a tax return in the client's presence, during an initial interview. I find that after they leave, and I don't have the distraction of a conversation, it's much easier to look the tax return over, to catch information or issues that I have missed. The pause gives me time to think of ways to improve their tax picture, and legally reduce their taxes.

For instance, would an IRA contribution help? Do they qualify for a SEP-IRA contribution, payable as late as October 15 (if the tax return remains on extension until then)? Are there basis details that could be clarified, if they had better guidance on how to find their costs and improvements, for example? Is something being reported on the correct form? (For instance, should a short-term rental be on Schedule C or Schedule E?) Does the sale of a major asset belong on Schedule C, Schedule D, Schedule F, or Form 4797? Do they normally tithe, but have not listed contributions this year? Is there some research I could do to find a better way?

With those explorations done, I can follow up with the client either by phone or in person for tax reduction consultation related to both last year's taxes and this year's. In fact, with one client, by following this path, and by discussing their situation with my peers, I have been able to reduce their federal tax bit for 2013 by over $50,000.

To accomplish all this, I rely on a second pair of eyes to check, and a chance to review afterward.

But suppose you can't afford a second person to review your work. What can you do to ensure you prepare the best tax return possible, with the fewest errors? In that case, follow these three steps:

  1. After you finish the return, set it aside for three days and do other work. After three days, you will be able to look at the return with fresh eyes.
  2. Use the checklist to review the return for errors. That will take care of the details.
  3. Stop and think about the bigger picture. Is there something you can do (or have your clients do) to reduce their taxes for last year?

These simple steps can make you a hero!

About the author:
Eva Rosenberg, EA, is the publisher of TaxMama.com ®, where your tax questions are answered. Eva is the author of several books and ebooks, including "Small Business Taxes Made Easy." Eva teaches a tax pro course at IRSExams.com and tax courses to help you deal with tax debt http://www.cpelink.com/teamtaxmama.



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