This category covers establishments that primarily provide tax return preparation services without also providing accounting, auditing, or bookkeeping services. Establishments engaged in providing income tax return preparation services that also provide accounting, auditing, or bookkeeping services are classified in SIC 8721: Accounting, Auditing, and Bookkeeping Services.
Tax Preparation Services
Tax return preparation services primarily operate during the first four months of the calendar year, since April 15 is the standard due date for federal tax return filings. According to a survey conducted by Tiburon Strategic Advisors, along with several other research and survey groups, in 2002 there were 450,000 certified public accountants (CPAs) in the United States, as well as 40,000 enrolled agents (EAs). Of these, nearly all EAs and 170,000 CPAs were in private practice, with tax planning and tax return preparation as the primary revenue source.
According to Tax Return Preparer's Liability, a number of Internal Revenue Service (IRS) regulations govern the preparation of tax returns that must be followed by members of this industry. All tax preparers are required to sign their clients' returns and provide additional identifying information, including the names of all persons assisting sufficiently in return preparation to qualify as preparers themselves. Because the IRS might contest only a portion of a complex return, it requires exact identification of the preparers responsible for each portion. In addition to furnishing clients with copies of their returns, preparers are required to keep copies on file for subsequent inspection. They are not, however, allowed to disclose personal information kept on file to other parties.
Preparers are penalized for negotiating the amount of a refund on a return or for accepting a refund as payment. This regulation arose because of unscrupulous preparers who had accepted refund checks as their preparation fees and then, without the clients' knowledge, increased the amount of the refund and pocketed the extra income. This form of abuse cheated customers and put these tax payers at risk of IRS penalty.
Any falsification of the tax amount owed or to be refunded is unacceptable, although tax return preparation services are not expected to make independent verification of the truth of a client's claims. Preparers are, however, expected to raise questions about uncertainties or apparent irregularities and cannot ignore a suspected mistake or falsehood.
False reporting and knowingly understating a client's true tax liability can result in penalties by the IRS. The government, however, assumes innocence in the case of certain errors, such as clerical or mathematical mistakes. The incorrect handling of elements of tax law does not incur...