1. Do you have tax filing obligations with the IRS for the 2020 tax year?
As an American expat, cross-border tax matters are often complex and typically require the services of a qualified U.S. tax return preparer. It’s important to stay tax compliant and be aware of recent cross-border tax developments, especially, during turbulent times and ever-evolving tax compliance and enforcement framework.
It’s nearly impossible to keep your finger on the pulse of all these developments, especially, if you’re someone with no training or experience in U.S. taxes. Even tax practitioners struggle from time to time and require significant resources and due diligence to stay up-to-date. To make sure the tax filing process is completed in an accurate and timely manner, choose a qualified U.S. tax return preparer with relevant cross-border tax experience.
With the right professional by your side, you will be able to file your U.S. taxes, while mitigating errors and maximizing applicable tax benefits.
That begs the question: How do you find the right cross-border U.S. tax return preparer?
There are several types of tax preparers: their academic background, professional experience in the cross-border tax area and U.S. international tax, qualifications and professional certifications, as well as the practice setup that set them apart from each other.
Do your due diligence and carefully review your qualified cross-border U.S. tax return preparer’s academic and professional credentials – did they just take a course or a few courses in U.S. tax or they got a U.S. academic background? Did they gain all their U.S. tax experience while working in Canada or outside the United States or they have actual U.S. work experience? Do they keep up-to-date with recent tax developments?
Your needs will determine which cross-border U.S. tax return preparer is right for you. Here are a few questions to ask before making a decision.
2. Did Your U.S. Tax Return Preparer Sign the Prepared Tax Return?
If you had someone assisting you in preparing your U.S. tax return and you compensated them for tax return preparation, they should sign the tax return in the respective field and include other relevant information on the tax return.
The absence of a tax return preparer’s signature and other information is usually indicative of a lack of a qualified tax return preparer certification or designation. It can also be an indication of unwillingness of the tax return preparer to take a risk of an IRS audit or tax authorities’ challenges to the tax filing position taken on the prepared tax return (this could be a result of limited technical knowledge or frivolous tax position taken on the prepared tax return).
Note that having a U.S. tax return preparer’s signature on your tax return does not remove your responsibility for the information reflected on the tax return. As the taxpayer, you are responsible!
3. Does Your U.S. Tax Return Preparer Have the Preparer Tax Identification Number (PTIN)?
Anyone who receives compensation for preparing or assisting taxpayers in the preparation of federal tax returns must have a Preparer Tax Identification Number (PTIN). This is a requirement by the IRS. It is also mandatory for the tax return preparer to include their signature as well as their PTIN in your U.S. tax return.
Similar to the lack of signature discussed above, the absence of PTIN may indicate the lack of a qualified tax return preparer qualification or professional designation.
4. Is Your U.S. Tax Return Preparer in the IRS Directory of Preparers?
The IRS directory does not include tax preparers. However, it will show you those U.S. tax return preparers who are CPAs and licensed attorneys, enrolled agents, and those who are part of the Annual Filing Season Program.
Why is this important? For starters, tax preparer fraud is one of the most common tax scams. The IRS directory enables you to find the most competent tax preparer near you with the right credentials. As such, people who provide voluntary tax preparer services or preparers with no credentials, but just PTINs, won’t be in this database.
The IRS Directory of Preparers can be accessed here: [Click here]
5. What Are Your Fees?
The IRS suggests that it’s best to steer clear of preparers with contingent fees; meaning they get paid for preparing your tax return based on the amount of your refund. Also, avoid preparers who suggest depositing all or part of your refund in their bank account. Don’t fall prey to those who guarantee that they can fetch you a more sizeable refund than the next tax accountant. This is a red flag.
By the same token, be wary of cross-border U.S. tax return preparers who offer to prepare and file your U.S. tax return for close to nothing. U.S. international tax is one of the most complex areas of U.S. tax law, and particular facts and circumstances may dictate a more complicated analysis and, accordingly, higher fees.
Look, we get it. Dealing with one’s taxes is no fun. Paying for it a fortune is the least you’d like to do. But this is one of the areas of your life that you’d better get right. You don’t want to be subject to hefty penalties for non-compliance if your U.S.tax return preparer missed an important form or filed it incorrectly. Notably, filing an IRS form when it is not required may create more issues than failure to file a particular IRS form timely. Be wary of U.S. tax return preparers who would file an IRS form for you “for conservative reasons.” That may indicate that they don’t know if the form is required to be filed in the first place. Now, if they provided you with their rationale and explanation of why they believe the form should be filed (even for conservative reasons), they may have the basis for such recommendation.
Review your cross-border U.S. tax return preparer fee structure and consider it in making your decision on whether to retain their services, but don’t make this the only or primary factor in your decision-making process. As a general matter, you should expect higher fees for higher quality work. The good news is that you can choose and do your own due diligence and research.
6. Does Your U.S. Tax Return Preparer File Tax Returns Electronically?
Generally, all paid preparers who have prepared more than 10 returns for their clients are required to file U.S. tax returns electronically. Both the IRS and state tax authorities have this or similar requirement.
If the U.S. tax return preparer doesn’t use e-file functionality, it may be indicative of the lack of relevant experience or credentials that allow U.S. tax return preparers to file tax returns electronically. You should at least inquiry about this.
Note that e-filing speeds up the processing of filed tax returns and accelerates a refund when owed. At the same time, some U.S. tax returns cannot be e-filed. Your qualified cross-border U.S. tax return preparer should explain to you the tax return position, filing strategy, and what to expect after the tax return was filed.
7. Will Your U.S. Tax Return Preparer Be Around After Your Return is Filed?
This is a question that often falls by the wayside. It’s incredibly important to check on whether your preparer will be around in the following months or years after they’ve worked with you.
You may have questions, concerns, or simply need to clarify something on your tax return. In addition, your tax return may be audited.
If it comes to that, your qualified U.S. tax return preparer (such as an enrolled agent, a CPA, or a tax attorney) can also represent you before the IRS during an audit or appeals.
Make double sure that they will be available to assist you after the return is filed. Make sure that they do exist. As funny as it may sound, we are living in the digital era. There are many tax return preparers that only exist online / virtually. They don’t have an office and work here and there, primarily by “farming out” U.S. tax return preparation to third-party contractors and other firms. While working remotely, especially during COVID-19 times, is a new way of getting things done, having someone who is actually in the business of taking care of one’s taxes is better than working with a great marketer and sales professional who found a way to sell you the work, as well as get someone do it for them.
How can you check if your qualified cross-border U.S. tax return preparer exists? While you work with them, keep tabs on how responsive they are via phone and email. Did you even meet your tax return preparer in person or via video conference? You may want to visit their offices and do additional research on how long they have been in business and what process they are using to get the job done.