FTB and CTEC join forces
To ensure tax preparers are legit1
FTB is joining with the California Tax Education Council (CTEC) to remind California taxpayers to check up on the person doing their 2007 taxes, and avoid getting stung by an illegal tax preparer.
With the tax season in full swing, FTB investigators are conducting random sweeps statewide, dropping in unannounced on tax preparers suspected of operating illegally under state law. About 3,000 to 4,000 tax preparers in California are estimated to be working without state-required registration.
In California, there are four types of professionals who can prepare state and federal taxes for a fee:
- Certified public accountants.
- Internal Revenue Service (IRS) enrolled agents.
- CTEC-Registered tax preparers.
It's in the last category, known as CRTPs that investigators most often find individuals who haven't met the requirements. Individual tax preparers who aren't lawyers, CPAs, or IRS enrolled agents must be registered by CTEC, a nonprofit established by the Legislature a decade ago to ensure that California taxpayers get the best qualified advice when paying someone to prepare their taxes.
While even registered tax preparers can make a mistake, there's more accountability if the person is legally qualified. And, when preparers are paid to do a tax return, they're required to sign the return. CTEC and FTB advise taxpayers to ask to see their tax preparer’s CTEC registration card.
The emphasis is on competency: To be registered, tax preparers must initially complete 60 hours of class work on state and federal tax law. After that, they’re required to annually complete 20 hours of tax classes. They also pay an annual $25 registration fee and must obtain a $5,000 bond – insurance for individuals who later claim their tax preparer committed fraud, deceit, or "any unlawful acts or omissions."
Since the program started in 1997, the number of registered tax professionals has doubled, to roughly 40,000 today. The penalty for not being registered is $2,500. Preparers who fail to comply and register with CTEC within 90 days will face a penalty of $5,000.
In 2007, FTB investigators visited 715 tax preparation offices statewide and issued penalty letters to 91 individuals who weren't registered with CTEC. This year, the FTB Tax Preparer Enforcement Team is increasing the number of sweeps.
The biggest source of problems is in Los Angeles and the Bay Area. Some individuals are trying to make some income on the side and are probably unaware of the registration requirement. Others are fraudulent tax preparers who knowingly understate income or overstate deductions (such as auto mileage or child care expenses) to increase the size of a refund, which increases their word-of-mouth reputation. Inflated refunds also result in higher fees, since some unscrupulous tax preparers base their fees on a percentage of the refund amount.
The friendly neighborhood mom and pop tax preparers may have good intentions, but because they are unregistered, they are missing the mandated class work on new tax law changes each year. They run the risk of inadvertently cheating their clients out of reimbursements, like the earned income tax credit for low-income families, for example.
As a diligent tax preparer, you may want to educate your clients and potential clients on why they should do business with you, rather than the unscrupulous preparer down the street. CTEC spells out the warning signs of a bad preparer, and what to look for when seeking professional tax preparation help:2
Beware if your tax preparer…
- Claims to be a registered tax preparer but is not listed on CTEC’s Website.
- Fails to give you a name, address, phone number, and bond information.
- Refuses to sign your tax return.
- Asks you to sign a blank tax form.
- Refuses to provide copies of any documents you have signed.
- Promises a refund, without even looking at your tax information.
- Charges a fee based on a percentage of your refund.
Taxpayers who want to check whether their tax preparers are qualified to prepare taxes in California can check these sources:
- CTEC Registered tax preparers: The California Tax Education Council (CTEC) at 877.850.CTEC (2832) or visit www.ctec.org.
- CPAs: The California Board of Accountancy at 916.263.3680 or visit www.dca.ca.gov/cba.
- Enrolled agents: The IRS Office of Professional Responsibility (OPR) at 313.234.1280.
- Attorneys: The State Bar of California at www.calbar.ca.gov.
For more information on registered tax preparers, including how to become a CTRP visit the CTEC Website, or call 877.850.CTEC (2832) weekdays from 9 a.m. to 5 p.m.
1. From Sacramento Bee, February 5, 2008: "Personal Finance Notebook: Check that tax preparer is legit," Claudia Buck.
2. Source: California Tax Education Council.