Selecting A Tax Professional

When you hire a professional – doctor, lawyer, CPA, architect, engineer, etc. – you run the risk of wasting a lot of money on paper shuffling. None of them are cheap, and if they get caught in a time-wasting paper-shuffling whirlwind, it can get really expensive. This article is about how to avoid mistakes when hiring a tax professional.

First of all, there is a wide differential between the best professional in a profession and the worst, or even an average professional. That may not surprise anyone, but the extreme difference will startle everyone. After stumbling across an article in Business Insider about the surprising difference between a leading talent and an average talent, I did extensive research and came up with this report, which I published a year ago. The Definitive Study on Human Performance.

I am going to deal specifically with hiring a tax professional because I’m very familiar with that.

Oddly enough, despite the impression the public has of well educated and knowledgeable professionals, the dominant marketing approach in the tax & accounting profession is “relationship marketing.” Why do they use “relationship marketing” when a competent professional should be producing decent results. The reason is, professionals that consider themselves ‘decent’ in their profession, simply aren’t that ‘decent.’ Relationship marketing is the probably the exclusive marketing approach throughout the accounting profession.

But it has some major drawbacks for clients.

I personally attempt to use ‘results-based marketing’ because we produce great results, but that’s a very difficult way bring in clients in real life. You simply can’t promote yourself with believable authenticity.  But, if someone else mentions that we deliver great results, I can’t beat the prospect off with a stick. I get most of  my new clients from referrals. Unfortunately, the guy making the referrals eventually runs out of prospects.

Relationship marketing may be a good thing for professional tax & accounting firms, but it’s death for the business referred, because they end up paying the piper in the form of paying more tax than the law requires. Relationship marketing is probably responsible for causing the vast majority of businesses to pay more tax at higher tax rates than the Global 500. If you read The Definitive Study on Human Performance, you’ll notice the vast difference between an outstanding professional and an average professional. The average professional ranks in the bottom 10% on performance. Fewer than 1% of professionals rank above 50% on performance, where performance describes the results they get. Nearly 100% of the top 10% of professionals work for the Big 4 accounting firms or the Global 500. Which means you don’t have access to that kind of expertise. You have to settle for someone in the bottom 10% on performance.

As I said, I try to market on the results we get, which means we constantly reach out to LinkedIn prospects with a pitch. But the typical reply I generally get is, “We are very happy with our present firm.” Since i have reached out to perhaps a thousand prospects, and picked up very few new clients, it’s obvious the typical CEO is over-rating their tax professional to an enormous degree. And if you attempt to dislodge them, they double down on their current professional. Their loyalty is admirable, but it’s a terrible mistake.

The typical CEO, and even people in the accounting profession, don’t understand the vast difference between a top ranking above 50% performance on The The Definitive Study and an ordinary ranking below 10% performance. But it’s enough to bankrupt you.

Another problem is that the average CEO or business owner has no idea how to evaluate a tax professional. So they automatically default to a relationship and assume the professional’s performance will be as good as the relationship. We all know that’s silly, but that’s how it works. When you try to dislodge them from that attitude, they resist voraciously. Part of the problem is that 99% of the time, a poor tax accountant will produce a tax return that meets enough of the requirements to avoid tax audit. There’s no law against filing a sloppy tax return that requires you to pay too much tax.  The IRS could care less.

That’s the problem. Poorly prepared returns prepared by poor tax preparers result in paying more tax than the law requires. Sometimes a lot more. But as long as you pay the tax, the IRS is happy. If you fail to pay everything your return says you owe, even if the liability is overstated, the IRS will come down on you like stink on a three day old fish. Incompetence & foolishness is not a valid defense.

This is the gold standard for evaluation tax professional. Very few tax professionals measure up. The vast majority rank below 50% competence. Most of them, below 10% performance. It’s like having a blind man prepare your returns. But, the client will defend him to the death. Crazy, but that’s the way it is.

What you absolutely don’t want is one of these tax professionals/CPAs who is painting by the numbers.

QUOTE: “Anyone may arrange his affairs so that his taxes shall be as low as possible. He is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes.” JUDGE LEARNED HAND, leading arbiter in creating America’s tax system.

If you are reading this as a business owner or CEO responsible for selecting tax professionals, consider this. Almost no tax professional rearranges your affairs or reorganizes your businesses. But the quote above talks about patterns and arranging your affairs. Why is the entire tax profession unaware for this?

If you know or have an idea, please leave a comment. Thanks.

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