I have been a tax preparer for over 40 years, with a BA and MBA.
I am extremely upset with the new Internal Revenue Service policies, especially those that involve the Earned Income Tax Credit. While I do understand that the IRS, and hence taxpayers, have a huge problem with fraudulent returns, I believe they are going too far. I do not work for the IRS nor am I employed by the IRS police department enforcement unit. I don’t mind having to ask a client a list of questions prepared by the IRS to determine eligibility. I also believe said form should be attached to the clients’ return to serve as proof that we, as paid prepares, have done our due diligence and hence should relieved of any additional responsibility or liability.
I am working for my client, and not the IRS.
Why should I be responsible for asking additional questions, which the IRS itself cannot even define in advance? I am not hired to audit an individual’s financial information. I prepare every return based on the information a client provides me and rely on them telling me the truth. Anything else would cross the line into an audit. I point out, for example, that when a client states that they have medical insurance for their pet and have out-of-pocket medical expenses for their surgery, that these are not deductible. I don’t ask them to show me every receipt for their Schedule C or LLC operation.
At best, some of the decisions we are asking to make are judgmental in nature. Why shouldn’t the total responsibility be on the taxpayer? Let me state that I am not talking about a situation where a preparer schemes or consorts with the client to fraudulently extract funds from the IRS. They should both be sent to jail and not given a nominal fine.
I helped defend a lawsuit many years ago brought by New York State against my employer, a plumbing repair contractor, involving the status of capital improvements. When a customer asked us for a capital improvement certificat to avoid the payment of sales tax, we generally gave it to them. After all, replacing a water faucet (as opposed to fixing one) does have a useful life of more than a year.
New York hit us with a $20,000-plus lawsuit stating that we should determine whether a job was deemed a capital improvement, and not the customer. Along with the aid of a plumbing association, we fought the lawsuit and won. New York appealed the decisions and we won again on appeal. They then tried to bring the action again at the state supreme court level and the judge refused to hear it, advising the state that we were not their police force. They need to challenge the customer who makes the final determination.
While that case is not exactly the same, the concept is similar and should apply. The IRS should not be able to force us into becoming their auditors or police. After all, what would they do if the taxpayer prepares their own return or simply walks out and goes to the guy down the street now that I’ve instructed him which of his answers would not let me file for the EITC?
Sam Mudaro is a Las Vegas-based tax preparer with over 40 years of experience in the field, in addition to service as controller, chief financial officer and chief operating officer for companies of varying sizes.