How Much Help Is Your Tax Preparer?

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Can your tax preparer help you if you run into trouble with the IRS? It depends on what kind of trouble, but generally your everyday, average tax preparer cannot do everything necessary to resolve your tax issues.

If your tax preparer is either an enrolled agent, certified public accountant, or tax attorney, then you will likely have all the authority you need in your corner to address whatever the problem might be. Although attorneys are often better suited for assisting with collection, litigation, and tax court matters. The IRS sees these three categories of tax professionals as having “unlimited representation rights.”

But if your tax preparer does not possess one of these three credentials, then the amount of help he can provide is very limited. Tax preparers who are not EAs, CPAs, or attorneys (also known as “unenrolled preparers”) may only represent taxpayers on issues having to do with returns that they personally prepared. And even then, if the issues escalate to the level of the IRS Collections Department, IRS Appeals, or beyond, they must turn it over to an EA, CPA, or attorney with tax preparer credentials (or the taxpayer may try to handle it on his own). If the dispute cannot be resolved administratively and makes its way up to US Tax Court, then it should certainly be handled by an experienced tax attorney, but it can also be handled by an EA or CPA who has been admitted to practice before the Tax Court. And, of course, the taxpayer still has the option to go at it alone as a “pro se” litigant in Tax Court.

It is one thing to say that someone has the authority to help you, but it is quite another thing to say that they have the skills, experience, and desire to help you. I have met a number of Enrolled Agents that are qualified to represent their clients in audits and IRS disputes, but who simply do not choose to do that as part of their business.  And those who make the decision to pass on those types of cases, never gain the necessary experience and skills to represent a taxpayer competently in such matters. Unenrolled preparers are even less likely to include IRS representation as part of their repertoire.

Although nobody anticipates getting into trouble with the IRS, and it can’t really be predicted, these are a few things to keep in mind when finding an experienced tax preparer. And according to the IRS, November is a good time to make that decision.

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Further Attempts to Regulate Return Preparers

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The government is trying to impose regulations on tax return preparers again.  This time they are relying on rather questionable authority.  It is a post-Civil War statute called the “Horse Act of 1884.”

After the Civil War, individuals often filed loss claims against the US government, primarily for horses that were lost in battle.  A cottage industry sprung up that provided representation in the filing of such claims.  Not surprisingly, once agents started filing loss claims for a fee, there was a spike in fraudulent claims, so the government began regulating them, giving only the ethical ones the title of “enrolled agent.”

That title still exists today.  Enrolled agents are tax preparers that also have authority to represent taxpayers before the IRS.  They often prepare tax returns, but they are also permitted to negotiate for tax relief as a representative of the taxpayer.  In the hierarchy of tax professionals, they fit somewhere between a regular tax preparer and a tax accountant.  The legal team opposing regulation points out that the key difference is that a tax preparer may not actually represent a taxpayer.  The IRS would have the court ignore this distinction and expand a 140-year-old statute.

I don’t know if it is fair to require that every tax preparer take tests, pay fees and maintain a license.  With so many people using tax software to file on their own, the mom-and-pop tax prep firms already struggle quite a bit these days.  Regulation of the entire tax preparation industry would hit some firms pretty hard.

Court Shoots Down IRS Return Preparer Certification Program

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If you follow current events in the world of tax relief and tax preparation, you probably heard about the federal district court decision permanently enjoining the IRS from enforcing its 2011 tax return preparer regulations.  The U.S. District Court for the District of Columbia ruled that the IRS lacked authority to regulate tax return preparer certification programs — 
such authority would have to be granted by Congress.

The IRS Return Preparer Initiative would have required thousands of non-professional return preparers across the country to pass minimum competency exams, pay a fee, and complete minimum education requirements.  In fact, many return preparers did take the exam and pay the fee, all for naught apparently.  The initiative did not seek to regulate the CPA, tax attorney, or enrolled agent.

Large tax prep companies like Intuit (TurboTax), Jackson Hewitt, and H&R Block disapprove of the decision; you can probably guess why.  They will tell you that it hurts taxpayers who unwarily hire incompetent return preparers, but we know their only concern is the bottom line and weeding out as much competition as possible.  Of course, the “mom & pop” tax prep firms see this court decision as a big victory.

Some believe that voluntary certification is a better solution.  Voluntary certification would still raise the bar for tax preparers and the industry in general, but in a more “free market” sort of way.  Tax preparers would decide on their own to certify, or not to certify.  And individuals seeking tax help would decide on their own to hire a certified preparer, or take their chances with someone else.

At this point it is not clear whether the IRS will appeal the decision.  Read the IRS official statement here.