TEXT OF INTERVIEW
Tess Vigeland: Starting next week, 130 million of you will get a letter from the IRS. Don’t worry, it’s just Uncle Sam writing with a simple reminder: fill out a 2007 tax return if you want to get that rebate check.
Normally, mail from the taxman might induce panic… say, an audit letter that orders you dredge up all your receipts and tax records from the past seven years. Might be time for a little help from a tax preparer.
But, what if your CPA got you into that mess in the first place? You’re still the one who gets in trouble.
So we brought in Frank Degen to find out how you can make sure your preparer isn’t preparing you for an audit.
Vigeland: Hi Frank.
Frank Degen: Thank you Tess. It’s nice to be back.
Vigeland: How can you tell if your tax preparer has made a mistake? Is it possible?
Degen: It’s tough. The problem is that most taxpayers rely on their preparer to prepare an accurate return…
Degen: …so unless you’re really going through it, it’s very difficult to ascertain.
Vigeland: So, should you go back and, at the very least, I suppose, double-check all the math?
Degen: I don’t think so, because most preparers now use computer software and it would be very rare indeed to have an arithmetic error. I think there’s a couple of areas though, maybe three areas that taxpayers should either ask questions of the preparer or perhaps make sure that the preparer is asking questions of them.
Vigeland: OK. What would those be?
Degen: Well, the first one would be contributions. Let me just give you a scenario of a prior year: The taxpayer may say “Well, I gave $10 a week to church and $50 at Christmas and $100 to other charities.” The preparer could rely on the taxpayer’s oral testimony, so they would probably write down the $670, which is the total there, but now, the preparer must, or at least should, turn around and now ask some questions: “do you have receipts for all those?”, because Congress enacted legislation that says regardless of the amount, you must have a receipt or a statement from the charity verifying the contribution.
Vigeland: Alright, what else? You said there were three.
Degen: A second one — and this is probably the most shortcut area for tax preparers is in mortgage interest. Many preparers don’t ask sufficient questions in this area. Let me give you an example once again: taxpayer. let’s say, brings in to a new tax preparer a 1098 mortgage statement from the bank and the mortgage statement says the taxpayer paid $15,000 in interest — in mortgage interest. If the preparer simply writes the $15,000 down, they’re not doing their job, because some of it may not be deductible at all. Perhaps all of it is deductible for the regular tax, but maybe only some of it deductible for the dreaded Alternative Minimum Tax.
Vigeland: Uh oh, you had to bring that one up.
Degen: I know, I know; rub salt into the wounds, you know?
Vigeland: OK, so make sure your tax preparer is asking you about charitable contributions and specific questions about your mortgage interest deduction and what’s number three?
Degen: The third one, Tess, that might be of concern is state income tax refund. Now, I realize all your listeners don’t pay state income taxes because there are about nine states that don’t have that, but as a general rule, one thing is that if you get a state tax refund from a prior year, it may be taxable the following year. It’s a little complicated, but ask your preparer if this is taxable and if so, how much of it is taxable.
Vigeland: Frank Degen is an enrolled agent, which means he is licensed by the Treasury Department to represent taxpayers before the IRS, which means, of course, that we hope we never ever have to hire him. Thanks so much for your time, Frank.
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