Unscrupulous tax prep supports a lot of metaphors. For every leak the profession plugs two more spring up. For every bug you catch there are a dozen you never see. Abraham Lincoln once likened an endless task to shoveling fleas across a barnyard.
Whatever image you pick, the profession has tried for years to coordinate, regulate, certify and monitor a vocation where the only tool to control illegal financial trickery is the good will of professionals who probably work hard to obey the law anyway. The latest efforts include the IRS’s RTRP initiative and, more recently, the service’s contested proposal for voluntary preparer certification.
In 28 years in practice, Enrolled Agent Linda Burney Fuhr, at Owen Lyon & Associates, Lewisville, Texas, has “had countless individuals” seek help with tax issues ignited by “the incompetent and in some instances downright fraudulent acts of other tax practitioners.”
“I’ve been in favor of some sort of regulatory oversight of the tax profession for years,” she added, noting that numerous professionals plumbers, manicurists, child-care providers must all obtain some sort of licensing and demonstrate minimal competency in their fields. “The public deserves some measure of assurance that individuals they hire to prepare their tax returns meet basic standards of practice,” said Fuhr, who in 2011 helped write the RTRP exam and who was “shocked” by the recent resistance to the RTRP initiative by the IRS.
Preparer abuse seems on the rise. Though sentences of preparers increased year to year from fiscal 2011 to 2013, the percentage of sentences fell relative to the number of investigations launched against abusive preparers, according to data at IRS Criminal Investigations.
Preparers offer various opinions on how to weed out bad apples. “Cracking down begins with the registration of all unenrolled preparers,” said Lonnie Gary, an EA with Young, Craig + Co. in Mountain View, Calif. “Obviously after the Loving decision, this will have to be done through legislation. I don’t believe that a voluntary registration program will ultimately protect the public from unethical preparers. Tracking of PTIN holders’ systemic errors may also be helpful in determining unethical preparers or those in need of additional training. Once unethical preparers have been identified, there must be enforcement to shut those activities down.”
“Make the RTRP license voluntary, just like EA and CPA licenses are now,” said EA Stephen Jordan in Salem, N.H. “Preparers who are interested will participate elevating the quality of service in the overall industry of tax prep.”
“Promote [your] professional association, using every opportunity to alert taxpayers about extravagant refund promises,” added Ken Tomcich, an EA with Sak Services in Arlington, Va. “Promise an accurate return and preparer backup in event of an audit. Provide positive examples of ethical tax-preparation service.”
The public is likely eager to help pinpoint unethical preparers and avoid audits but it needs help from the profession.
“Educate the public on preparers not being required to be licensed or maintain continuing education relative to tax law and updates,” said EA Twila Midwood with the Advanced Tax Centre in Rockledge, Fla. “The public should understand that they sign their returns under penalty of perjury and that they are ultimately responsible for the return regardless of what the preparer reported on the return.”
“Educate taxpayers on the legal requirements required in your state,” added Becky Neilson of Neilson Bookkeeping in Sheridan, Calif. “I explain to my clients that according to California state law every tax preparer that works for compensation must be CTEC-registered and meet state requirements. Whenever we hold seminars on tax preparation for the general public, we should clearly let taxpayers know the requirements and what to look for in an ethical preparer.”
“On all of the self-prepared returns, ask if they paid someone to help them,” said Delmar Gillette, an RTRP with Economic Planning Services, in Newport News, Va. “Find out the name of the preparer. Or look at more complex returns, with Schedule Bs, Cs, or Es, for example, and find out if they’re self-prepared. Given what I have seen on self-prepared returns, a simple audit will unveil simple mistakes that will lead to additional dollars to the IRS.”
Gillette also recommends auditing all Earned Income Tax Credit-involved, self-prepared returns, “a treasure house of ill-prepared returns. If each taxpayer has to demonstrate proof of each child claimed for EITC, that would deter the unethical preparers because the taxpayer would stop going to them.”
The IRS has PTINs for all “ethical” preparers, Gillette pointed out. “Use the PTIN to see what percentage of their returns are EITC and audit a few to demonstrate competency,” he said. “Better yet, allow the Department of Social Services or Health, Education, & Welfare to distribute the EITC claims. Have the software vendors add an ID tag on each e-filed return, especially those supposedly self-prepared. You might be surprised how many are fee-based, prepared returns where the preparer asked for a slice of the refund.”