What business owners should look for in a new CPA

Picking an accountant is one of the few business decisions where the cost of a bad choice shows up a year late, usually in the form of a notice. The good news is that the things worth checking are public, and checking them takes about twenty minutes.

Start with the license, because not every preparer has one

Anyone paid to prepare a federal tax return must have a Preparer Tax Identification Number, or PTIN, issued by the IRS. That is the floor, and it is a registration rather than a credential. It does not require an exam, a degree, or continuing education.

Above that floor sit three groups with unlimited rights to represent you before the IRS: certified public accountants, enrolled agents, and attorneys. A CPA is licensed by a state board, has passed a four-part exam, has met an experience requirement, and carries annual continuing education. An enrolled agent is credentialed federally by the IRS and is focused specifically on tax.

Two places to verify, both free:

• The IRS Directory of Federal Tax Return Preparers, which lists preparers by credential and ZIP code.
• The state board of accountancy where the CPA is licensed. Every state publishes a searchable license lookup showing status, issue date, and any discipline on record.

If a preparer is reluctant to tell you which state licenses them and under what number, that is the end of the conversation.

Ask who is actually doing the work

In larger firms the person who sells the engagement is frequently not the person who prepares the return, and neither is the person who reviews it. That is not automatically a problem. Not knowing is the problem.

Worth asking directly: who prepares it, who reviews it, who signs it, and who you call in August when a notice arrives. If the answer is a department rather than a name, ask how a question gets routed and what the response time is.

Get the scope in writing before the fee

A fee is meaningless without a scope. Two firms can quote the same number for materially different work. The engagement letter should name the returns being prepared, the states involved, the entities covered, and what is excluded.

Items that are commonly assumed and rarely included:

• Bookkeeping cleanup needed before the return can be started.
• Quarterly estimated payment calculations during the year.
• Response to an IRS or state notice after filing.
• Amended returns for prior years prepared by someone else.
• A formal reasonable compensation study for an S corporation.
• Additional state returns when the business has activity outside its home state.

None of these are unreasonable to bill for. They are unreasonable to discover in April.

Understand how you will sign and send documents

Returns are filed electronically, and you authorize that filing on Form 8879. If you are signing remotely rather than in an office, IRS Publication 1345 requires the preparer to verify your identity through knowledge-based authentication, which is a short set of questions drawn from your credit history.

A generic e-signature tool that simply captures a signature image does not satisfy that requirement. If a firm is signing 8879s remotely without identity verification, they are out of compliance with the rule, which tells you something about the rest of the practice. Ask what portal they use and whether documents travel by email or through a secure system. Tax documents contain Social Security numbers, and email is not an appropriate channel for them.

Match the practice to the size of your problem

A high-volume preparer who files several hundred returns a season is efficient and inexpensive, and you will be a file number. A small practice with a limited roster is more expensive per return and considerably more available. A regional firm sits between the two and charges accordingly.

There is no correct answer. There is a correct match. An owner with one entity, clean books, and no unusual transactions is well served by volume and price. An owner whose business and personal returns interact, who takes distributions, who is thinking about an entity election or a large purchase, is buying judgment rather than data entry, and volume pricing generally does not buy judgment.

The warning signs

• A fee based on the size of your refund. Treasury Circular 230 restricts contingent fees for return preparation. A preparer whose pay rises with your refund has an interest that is not yours.
• Refusal to sign the return. A paid preparer is required to sign and include their PTIN. A return prepared for a fee and presented as self-prepared is a serious red flag.
• A promised number before seeing your records. Nobody can tell you what you will owe before reading your books.
• Pressure to deduct things you cannot substantiate. The signature on the return is yours, and so is the exposure.
• Deposits directed anywhere but your own account. A refund should never route through a preparer-controlled account.
• No engagement letter. If the scope is not written down, there is no scope.

Questions that are fair to ask on a first call

• Which state licenses you, and what is your license number?
• How many returns like mine do you file in a season?
• Who prepares the return, and who reviews it before filing?
• What is the fee, what does it assume, and what falls outside it?
• How do I send documents, and how do I sign the authorization?
• If I get a notice in September, what happens?
• What do you need from me, and by when?

A firm that answers these easily has answered them before. That is the signal you are looking for.