Sunday, August 17, 2008

Don’t Let Your “On the Side” Accountant Get You Audited

Accounting is a field filled with many accountants who prepare tax returns “on the side” or have a “side business” in addition to their full-time job. While this presents many problems with communication, audit representation, availability, etc., perhaps the biggest problem is the additional audit risk that the clients who use these types of tax preparers face.

Since many of these accountants are looking to make some extra money without any overhead, they have a tendency to share software with other accountants or steal software from the company they work for. When this happens, you can pretty much count on the fact that the “Paid Preparer’s Information” section of your tax return will either be left blank altogether, have “Unpaid Preparer” checked off, or have “Self-Prepared” checked off.

When any of the above items appear in the Paid Preparer Information section of a tax return, the audit risk of that tax return skyrockets. This is looked at the same as if a CPA prepared a return and does not stand by it enough to feel comfortable signing it.

Although it could be a perfectly innocent case of your tax preparer trying to save a few bucks on tax preparation software, the IRS will not know this until you tell them during your audit!

Additionally, the IRS is currently working on a piece of detection software that will identify quarterly payroll tax returns that are not signed by the preparer. Once in place, this system will be used to identify preparers who have a tendency not to sign their clients’ payroll tax returns and subject these clients to higher-than-normal audit risks.


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