I'm also 0 for 4 on tax preparers / tax accountants, so I concur with you its best to just do it yourself, which is what I now do. Only time I ever got audited (and failed) was when I had employed an accountant, since then I've never had a problem including passing audits. The tax code isn't /that/ complicated for most people's situation, and it's well worth understanding it.
I'm 1 for 6. And my current firm is overworked. I'm moving to do it myself (three companies, fund admin and personal). Recently Found a Tax-Accountant, not a CPA, who does advice only, no paperwork, who I'm using to cross-check my AI tools.
I am a CPA with 20+ years of experience and I feel like I need to defend our industry here.
There is no such thing as "failing" an IRS audit. You either under reported income, overstated deductible expenses, or your "accountant" changed the numbers you provided and committed fraud, which would have resulted in immediate legal proceedings by the IRS against the preparer. So did you "fail" because your preparer committed federal tax fraud or did you underreport your income?
The statement that the one time you used an accountant you got audited implies that you are confusing causation with correlation.
There are about 6 ways that the IRS selects returns for audit but only 3 are actually relevant here.
- Information Matching (ie. if your W2 does not match the W2 submitted by your employer). This mostly used for your basic W2, 1099DIV, etc. kind of taxpayer and is usually just a letter from the IRS telling you your numbers are wrong and you need to amend your return.
- If they are examining a related return (ie. you own a business and another partner in that business is being audited)
- Computer scoring which breaks down into the Discriminant Function System (DIF), basically, how does your return compare to similar returns, and Unreported Income DIF, what is the potential that your return underreported income. This is what is commonly used for businesses and self employed individuals' Schedule C. Basically, when you prepare a business return (1040 Sch. C, 1041, 1065, 1120, 1120S, or 990) you have to report your business industry's NAICS code, and provide a single line explanation what your business does. Using this and the return data, the IRS is able to score a return on the likelihood that profit is understated by comparing a businesses income and expenses to the norm for a similarly sized businesses in that industry. High scoring returns are then reviewed by IRS personnel.
One of those three things happened to you and none of them are the fault of a preparer that is using accurate information provided by the taxpayer.
Finally, you keep saying things like "accountant". You disparaging an entire industry without saying what type of tax preparer you used. Was it a CPA, licensed by a state with experience in tax? An Enrolled Agent, licensed by the IRS directly? Or a tax preparer, an unlicensed person preparing your return either on their own or through something like HR Block or Turbotax? Because if you used an unlicensed tax preparer and are blaming licensed individuals that is like hiring an unlicensed electricians and then when your house burns down from an electrical fire, turning around and saying all electricians are bad
Additionally, "the tax code isn't /that/ complicated"... tax law is so complex that it is the only form of US law in which ignorance of the law is an acceptable legal defense.
And that's true if all you do is have W-2 income, and RSUs/ESPPs. ESPPs were the most complex thing I had to deal with until I stupidly decided to do things and get K-1s.
Fair point, but the actual "tax code" (Title 26 of the US Code) is extremely complex for most people to understand. If he is referring to IRS Form Instructions as the tax code, yes those are usually not very complex. From my perspective K1s, RSUs, & ESPPs are as simple as a W2 with state tax withholding and I think that is why I am struggling with so many of the comments on this post - I simply can't relate.
> From my perspective K1s, RSUs, & ESPPs are as simple as a W2 with state tax withholding and I think that is why I am struggling with so many of the comments on this post - I simply can't relate.
Well, you are an accountant :-)
With my K1, the issue was that it was for a real estate investment, and you have to be careful about things like bonus depreciation/cost segregation etc. One tax accountant I used was not carrying over the loss (or perhaps not applying the prior year's loss, or something like that). Another accountant was deducting that loss from my W-2 income, which I can't do as I'm not a real estate professional.
When I finally brought these points up and got all these corrected, I studied the final result and then continued doing them myself. But it was a pain getting the online tax SW (TurboTax, TaxAct, etc) to mimic what they did. I had to be really careful what things I said "Yes" to and what I didn't. I would never have figured it out on my own by reading the relevant tax publications (which I did peruse).
And then later, I formed a partnership with a friend so we could both invest in something. Now I also have to issue K-1s! Not fun! RSUs are much easier.
> There is no such thing as "failing" an IRS audit.
I consider being audited and the IRS finding corrections to prior returns as a "failure". Once I started doing things myself, I was audited and no corrections found (e.g. a "success"). In the case where I "failed" the audit, it had to do with how expenses were being handled by the accountant. At the time I was a contractor working on a 1099 and was tracking and submitting some business expenses for reimbursement, and some expenses were tracked and taken against my taxes but not reimbursed. What was filed did not align exactly with what was reimbursed, which caused an overstatement of deductions, causing me to owe back taxes. I am not making any claim that they committed fraud, as that's a crime which requires intent, I think they were just incompetent.
> The statement that the one time you used an accountant you got audited implies that you are confusing causation with correlation.
I actually didn't say that, I said the only time I got audited and failed was when I used an accountant, however I realize my style of writing made that unclear. During the time where I received income via a 1099 (and for part of that also had to file from a K-1 briefly for an LLC), I was audited three times in total. Only one time did I "fail", and it was the only time where I had professional assistance. In fact, I found the process of being audited surprisingly kind, the IRS folks involved were very professional and weren't mean about it at all. After my first experience being audited, even though I got the nasty surprise of owing back taxes, I was a lot less fearful of that process. That said, I have never had any understanding of how someone is chosen to be audited, but I have not been selected for an audit since moving to a W-2 for all of my income, which has been quite some time now. The experience of being audited did get me into the habit of storing all my tax related records carefully organized by year long-term, however, which I think is probably a good habit for everyone.
> You disparaging an entire industry without saying what type of tax preparer you used.
My intent isn't to disparage anyone, it's to share my own personal experience. I hired a CPA licensed in the state of Missouri (where I resided at the time) when I previously had a professional handle my taxes.
[–] tristor 1 day ago
[–] edoceo 1 day ago
[–] rbhelt 1 day ago
There is no such thing as "failing" an IRS audit. You either under reported income, overstated deductible expenses, or your "accountant" changed the numbers you provided and committed fraud, which would have resulted in immediate legal proceedings by the IRS against the preparer. So did you "fail" because your preparer committed federal tax fraud or did you underreport your income?
The statement that the one time you used an accountant you got audited implies that you are confusing causation with correlation. There are about 6 ways that the IRS selects returns for audit but only 3 are actually relevant here.
- Information Matching (ie. if your W2 does not match the W2 submitted by your employer). This mostly used for your basic W2, 1099DIV, etc. kind of taxpayer and is usually just a letter from the IRS telling you your numbers are wrong and you need to amend your return.
- If they are examining a related return (ie. you own a business and another partner in that business is being audited)
- Computer scoring which breaks down into the Discriminant Function System (DIF), basically, how does your return compare to similar returns, and Unreported Income DIF, what is the potential that your return underreported income. This is what is commonly used for businesses and self employed individuals' Schedule C. Basically, when you prepare a business return (1040 Sch. C, 1041, 1065, 1120, 1120S, or 990) you have to report your business industry's NAICS code, and provide a single line explanation what your business does. Using this and the return data, the IRS is able to score a return on the likelihood that profit is understated by comparing a businesses income and expenses to the norm for a similarly sized businesses in that industry. High scoring returns are then reviewed by IRS personnel.
One of those three things happened to you and none of them are the fault of a preparer that is using accurate information provided by the taxpayer.
Finally, you keep saying things like "accountant". You disparaging an entire industry without saying what type of tax preparer you used. Was it a CPA, licensed by a state with experience in tax? An Enrolled Agent, licensed by the IRS directly? Or a tax preparer, an unlicensed person preparing your return either on their own or through something like HR Block or Turbotax? Because if you used an unlicensed tax preparer and are blaming licensed individuals that is like hiring an unlicensed electricians and then when your house burns down from an electrical fire, turning around and saying all electricians are bad
[–] rbhelt 1 day ago
[–] BeetleB 1 day ago
And that's true if all you do is have W-2 income, and RSUs/ESPPs. ESPPs were the most complex thing I had to deal with until I stupidly decided to do things and get K-1s.
[–] rbhelt 1 day ago
[–] BeetleB 1 day ago
Well, you are an accountant :-)
With my K1, the issue was that it was for a real estate investment, and you have to be careful about things like bonus depreciation/cost segregation etc. One tax accountant I used was not carrying over the loss (or perhaps not applying the prior year's loss, or something like that). Another accountant was deducting that loss from my W-2 income, which I can't do as I'm not a real estate professional.
When I finally brought these points up and got all these corrected, I studied the final result and then continued doing them myself. But it was a pain getting the online tax SW (TurboTax, TaxAct, etc) to mimic what they did. I had to be really careful what things I said "Yes" to and what I didn't. I would never have figured it out on my own by reading the relevant tax publications (which I did peruse).
And then later, I formed a partnership with a friend so we could both invest in something. Now I also have to issue K-1s! Not fun! RSUs are much easier.
[–] tristor 16 hours ago
I consider being audited and the IRS finding corrections to prior returns as a "failure". Once I started doing things myself, I was audited and no corrections found (e.g. a "success"). In the case where I "failed" the audit, it had to do with how expenses were being handled by the accountant. At the time I was a contractor working on a 1099 and was tracking and submitting some business expenses for reimbursement, and some expenses were tracked and taken against my taxes but not reimbursed. What was filed did not align exactly with what was reimbursed, which caused an overstatement of deductions, causing me to owe back taxes. I am not making any claim that they committed fraud, as that's a crime which requires intent, I think they were just incompetent.
> The statement that the one time you used an accountant you got audited implies that you are confusing causation with correlation.
I actually didn't say that, I said the only time I got audited and failed was when I used an accountant, however I realize my style of writing made that unclear. During the time where I received income via a 1099 (and for part of that also had to file from a K-1 briefly for an LLC), I was audited three times in total. Only one time did I "fail", and it was the only time where I had professional assistance. In fact, I found the process of being audited surprisingly kind, the IRS folks involved were very professional and weren't mean about it at all. After my first experience being audited, even though I got the nasty surprise of owing back taxes, I was a lot less fearful of that process. That said, I have never had any understanding of how someone is chosen to be audited, but I have not been selected for an audit since moving to a W-2 for all of my income, which has been quite some time now. The experience of being audited did get me into the habit of storing all my tax related records carefully organized by year long-term, however, which I think is probably a good habit for everyone.
> You disparaging an entire industry without saying what type of tax preparer you used.
My intent isn't to disparage anyone, it's to share my own personal experience. I hired a CPA licensed in the state of Missouri (where I resided at the time) when I previously had a professional handle my taxes.