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Paid preparers and tax compliance, part 1: choosing a preparer

The IRS will begin accepting tax returns for the new filing season on January 20, one week from today. It's a time of year when taxpayers across the country are considering what resources they need to comply with a federal tax code that has become notorious for its complexity.

Some taxpayers choose software to help them navigate this complexity and file on their own. For those who do not itemize deductions, this may well make sense. But for tens of millions of others, it is important to find a competent and trusted tax preparer.

In this two-part post, we will discuss the role of tax preparers in facilitating tax compliance.

According to the financial website Motley Fool, 59 percent of taxpayers used paid preparers in 2012. That is nearly 3 of every 5 taxpayers.

Given the complexity of the U.S. tax code, getting professional help with your taxes is certainly an understandable choice, especially for taxpayers who itemize their deductions. After all, the code has grown to an astonishing 4 million words.

If you use a preparer, you will want to be sure the preparer has obtained a Preparer Tax Identification Number (PTIN) from the IRS. As the IRS explains on its page on tax return preparers, anyone who is paid to do federal tax returns for others must have a valid PTIN for 2015 before doing so.

The requirement to have a PTIN also applies to enrolled agents. Enrolled agents are tax professionals who are licensed to appear on behalf of taxpayers before the IRS.

In part two of this post, we will discuss the various types of credentials held by tax preparers and how fraud by a preparer can impact a taxpayer.

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