Further Attempts to Regulate Return Preparers

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

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.

IRS Needs to Revamp Visitation Project

image via almasworld.wordpress.com

Sometimes I think IRS management has a vision of what it wants to accomplish, but no clear roadmap showing their employees how to get there.  I can certainly appreciate the desire to take the first step and get the ball rolling on a project; at some point the planning and preparing must give way to action.  But it seems the IRS was underprepared for what they call the Return Preparer Visitation Project (RPVP).  While the latest TIGTA report puts a positive spin on the RPVP, if you read between the lines, its was obviously a waste of time and money.

The IRS badly wants to partner with paid return preparers because they see how important their role is in voluntary compliance.  Or so they say.  But the fact of the matter is, paid return preparers just want to be left alone to do their job; they don’t want the IRS checking up on them.  As part of the RPVP, IRS revenue agents were sent out to make in-person visits to thousands of return preparers around the country (nearly 2,500 visits in 2011 alone), and enrolled agents, CPAs, and tax attorneys were not excluded.

However, according to TIGTA, the criteria used to determine which return preparers would get a visit were found to be lacking.  In other words, the competent and ethical return preparers had to stay after school and clean erasers for something the naughty returns preparers did.  Because the visitations were not properly targeted, there is resentment stewing among some preparers who feel they didn’t need an IRS agent popping in to tell them something they already knew.

I’m sure the revenue agents didn’t mind leaving their cubicles for these little field trips, but next time the IRS needs to have a better plan to ensure they are productive.

IRS Return Preparer Program

After yesterday’s comments from the Commish (that’s IRS Commissioner Douglas Shulman) at the AICPA fall meeting, there is reason for some tax preparers to be concerned. They have to be careful that their desire to offer taxpayers maximum tax relief and maximum refunds does not override their desire to perform their duties ethically.

Boiled down to its essence, the program will ensure a basic level of competency for return preparers while enabling us to focus on finding unscrupulous preparers.

~ Douglas Shulman, IRS Commissioner

The enforcement segment of the IRS Return Preparer Program will include:

  1. Letters to preparers who have been identified as “high risk,” making sure they are doing their due diligence.
  2. In-person visits with preparers who have been identified as “egregious.”
  3. Letters and in-person visits to return preparers who are not using the Earned Income Tax Credit correctly.
  4. Special crackdown on “ghost preparers” (those who don’t sign or identify themselves with their PTIN)
  5. Undercover shopping visits to preparers who are suspected of engaging in fraud.
  6. Civil and/or criminal prosecution where appropriate.
  7. Coordinated effort with the Office of Professional Responsibility and the Department of Justice.
While there are many undefined terms being thrown around, there appears to be a spectrum of poor conduct and discipline emerging. At one end is the return preparer who has exhibited a pattern of honest-appearing errors who will receive a letter from the IRS (this is something new). At the other end is the preparer who is suspected of something more “egregious” who very well could be tracked down and thrown in jail (this is not new).