A few weeks ago, I landed a contract for a person who owns several companies. Daycare facilities, Construction related business, real estate related, just a mass array of corporations (LLC, LLP, C-Corp). In the course of our work he requested what is called a comfort letter (a document prepared by an accounting firm assuring the financial soundness or backing of a company). In the instructions from his bank was the fallowing sentence:
“A signed letter on letterhead from your CPA verifying that you’ve been self-employed for the past two years.”
So I wrote the letter. I have written many of these for clients to give to banks. Now before all my peers jump all up in me for doing it, let me explain to those who don’t know, writing these letters is not considered the best of ideas.
- The Dangers of Providing Client Comfort Letters
- Concerns Regarding Comfort Letters/Third Party Verification
- The Comfort Letter Trap
Because they aren’t good ideas to write, I was very selective in my letter and provided the information requested by his bank. In a manner that was accurate to the knowledge that I had, from documents I was given by the taxpayer. I quickly was sent a response informing me that I had done it wrong, that I didn’t follow the guidelines above. The Argument I am sure was the self-employed part (sentence above) but also wanted to make sure the client knew without a doubt that I am not a CPA, and to be addressed as such I almost felt insulted. I wrote a very long letter describing why I used the words I did, but first I wrote this:
“I am not able to call myself a CPA, being a CPA does not nor has it ever said that I know anything about tax law nor does it require me to know anything about continuing tax law.”
It took 30 minutes but I received an email asking to stop all work as he “needed” a CPA to do his taxes.
Through a long phone call I hung up without having him as a client any longer and I feel sorry for the guy. He will probably go through his whole life thinking that because someone is a CPA, they are the only ones who are able to prepare his tax returns.
Yes Virginia, there is a Santa Clause, No CPAs do not hold the golden chalice to being tax preparers, in fact on a very short list held on the IRS web site they are closer to the bottom than the top.
So I want to go over who you “need” to do your returns.
The simple answer is – the most qualified preparer for your situation is whom you need. Nevertheless, how do you decide who is the most qualified for your situation? Well lets go over some basics. Anyone can call himself or herself a tax preparer. All one has to do at this point, is be able to get a PTIN (I have had mine since 1999 when it first became available. P00030947) So how do you really determine their ability to do your tax return and if they know what they are doing.
I would first recommend that you ask your friends and family. The second thing I would do is I would follow the steps out lined by the IRS on their page Tips for Choosing a Tax Return Preparer.
Now you probably noticed I said nothing about designations such as EA or CPA. There is a reason for that. These designations do not make someone a tax Professional for your situation. You would be surprised how many CPAs don’t know anything about preparing tax returns. You will find that an EA may not know how to complete certain types of returns. I know an EA that is very proficient with Individual returns, but has very limited knowledge concerning partnership returns or S-Corps. Nothing wrong with that, just know that we all have our specialties. I mean you wouldn’t go to a foot Doctor if you are having migraines.
In fact you would be appalled to know that your Bigger CPA firms hire people outside of the firm (or bring them in temporally) during the filing season. There are even some firms that will “farm” them out over seas. Yes and these CPAs are the ones not being tested on tax laws and changes but still have a high degree of confidence within the IRS. It is just sad really – but public perception is what it is.
So where am I going with all of this? Just because someone is a CPA, just because someone is an EA, just because someone is actually able to call themselves an RTRP, Attorney or even the non-registered preparer – Check up on them. I have clients who are CPAs. I have a few clients who are Attorneys’, just last month I welcomed a new client who is a RTRP (she came here because her return became beyond her level or expertise).
Now to be fair to those who are so caught up in public perception rather than fact and reality I will be posting on Wednesday what it means to you for your preparer to have each of the above mentioned designations from the IRS web site, Enrolled Agent – EA, Registered Tax Return Preparer – RTRP, Certified Public Accountant – CPA, and Attorney.
© 2013, Bruce McFarland. All rights reserved.