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IRS regulation of tax preparers gains steam


Patrick Michael

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From Accounting Today  

Link to Entire Article

"Internal Revenue Service regulation of return preparers, sidelined since its prohibition by the Loving decision, is back for another try. 

Key measures in the bill include the following:

Giving the Treasury the authority to regulate paid tax return preparers;

Clarifying that the authority being provided is to reinstitute the IRS’s 2011 paid preparer regulatory program;

Giving the IRS authority to revoke an incompetent or fraudulent preparer’s Preparer Tax Identification Number;

Clarifying that certain nonsigning preparers — those who prepare returns under the supervision of an attorney, CPA or Enrolled Agent — are not required to obtain a PTIN; and,

Requiring a Government Accountability Office study on the sharing of information between the Treasury Department and state authorities regarding PTINs issued to paid return preparers and preparer minimum standards."

 

I hope they get it right this time.  I still find it hard to believe my barber has to get a license to cut hair but anybody can prepare a tax return.

 

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i am supportive of this legislation especially since under current law the Treasury Department has to go to court and obtain a conviction

in order to shut down a fraudulent preparer. However this will not halt the preparation of bad returns.

My state of Oregon requires the Licensing of all Tax Preparers plus 30 hours of CPE every year. This law applies to every preparer except CPAs and Attorneys.

Earlier this year I picked a new business client (Monthly Write Up, Payroll & Tax Returns).

The prior preparer has been licensed since 1991, has a bigger office than mine with licensed preparers working for her.

My client's 2019 1120S and 1040 were poorly prepared with a number of mistakes showing a real lack of tax knowledge.

Just because you are licensed doesn't mean you are competent.

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I may be the only one to disagree, but I think the IRS has bigger problems to deal with - like the ones addressed by Olsen every year in her review.

This doesn't mean I support bad preparers or bad tax returns.  None of us do, and I wish they weren't out there.  Especially shifty-eyed Sam across town who will deduct anything or lie for his customers.  But Sam would be most likely to be shut down by increased audit activity than regulation.

The problem with regulation of any industry is the enforcers pick and choose who to scrutinize.  They are quick to go after low-hanging fruit to justify their jobs, but are not so anxious to tangle with difficult violators who can effectively throw up roadblocks.  In other words, they could shut me down for accidentally failing to sign a return, or a failure to observe a petty regulation in Cir 1230.  But a very bad preparer in a nearby town some 30 miles away has been spewing out inaccurate returns for 30 years, but is married to a Federal Judge.

Big companies support regulation and in public relations campaigns they decry bad practices in their industry.  Regulators can eliminate small competitors by shutting them down, but if a regulator knocks on the door of a Fortune 500 company, they are told "Our lawyers will be in touch" and that will be the end of it.

I don't expect "like" emoticons from the group, but this is where I stand.

 

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I am with the "frog" on this one.   How many of us think the IRS is going to look at HRB?  JH?  LIberty?   They are not going after the pop ups either, cause they are gone by the time the return is reviewed.   The revocation of the PTIN just gives the IRS another intimidation factor against legal preparers.   Accept the audit findings or lose the ability to efile (which would shut you down).   The PTIN was instituted to protect preparer's SSN.   Now it will be a weapon used against us.

Tom
Longview, TX

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On 9/2/2021 at 5:43 AM, Patrick Michael said:

From Accounting Today  

Giving the IRS authority to revoke an incompetent or fraudulent preparer’s Preparer Tax Identification Number;

 

3 hours ago, cbslee said:

I really don't get your "intimidation and fear" point. Your "accept the audit finding or else" point is really over the top.

cbslee - who is going to make the determination that a preparer is incompetent?   How will the OPR get the referrals to investigate?   How does the appeal process work?   Will you be able to continue to work if accused by a RO or Agent of incompetence until a hearing is held?

Our PTIN is critical to our profession.   IF the IRS has unfettered ability to revoke without recourse, we lose our ability to practice.   I fear that kind of control in the hands of public servants who have shown ethical lapses during my career.    Remember when they went after conservative non-profits?   Remember when they released wealthy taxpayer confidential information just a few months ago?  Why did the Clinton administration have to pass a Taxpayer Bill of Rights to curb abuses by the IRS?  I have no faith in the workers at IRS anymore.   They don't have the tools or resources, are overworked, underpaid, and the last thing you want to do is give a marginally talented, stressed out government employee is a weapon to take your business away because you disagree with their findings.   You may not fear them, but I would much rather see an organization outside the Treasury Department having oversite of preparers.   I don't trust the IRS with that power.

Tom
Longview TX

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I disagree with denying the IRS the power to regulate preparers, but first let me disagree with Tom.  The IRS did not release those numbers of wealthy people.  If I'm wrong please direct me to your source.  Statistics are released on national tax filings, and the identities of some of the people at the top may be guessed because there aren't many who make $55 billion or whatever a year.  That tax info can also can be gleaned from public records (like when companies bid on projects and have to disclose tax records of officers, etc). The focus on conservative nonprofits was in my opinion entirely justified and part of the required legal process of vetting nonprofits to make sure they fill the bill.  Many of the groups that lost nonprofit status had no public benefit purpose but operated mainly in the politics arena.  Some legit organizations that really do some public good got caught in the net, but that didn't justify letting pseudo-nonprofits off the hook, which is what happened and continues. 

As for Frog believing IRS will just shut tax prep offices down at will, I really don't think so.  Until recent years, the IRS has treated tax pros as stakeholders and often said it couldn't carry out the tax laws without them.  The new commissioner and Sect of Treasury seem to voice the same.  I have attended seminars given by the Office of Professional Responsibility, and they always assured the audience that they don't go after people for a mistake here and there but look for patterns.  Like when the normal audit selection process pulls five of your EITC clients and every one of them says they don't have a business and don't know how that Sch C got on their return, then they pull maybe 100 more; If the majority of them have the same issue, a case against the tax pro is opened.  OPR is an office by itself and not necessarily affected by understaffing and overwork in other parts of IRS.

I firmly believe that licensing will improve accurate filings. Right now taxpayers have to trust that the person doing their taxes knows more about the law than they do.  At least the license will weed out those who don't necessarily cheat but just don't know what they're doing.  If you know of a preparer who's been cheating for decades, too bad IRS audit rates are down so much because of lack of money and staff.  We had a couple of CPAs in our area who did the same thing for years and are now out of business thanks to IRS auditors.  And I have read many times that the accuracy rate of returns in states that license preparers is higher than elsewhere.  Sure there may be a few outliers like the one near cbslee, but perhaps that firm was taking on clients that were beyond their level of expertise?  I have had several clients who came to me because their prior preparer said their return was getting too complicated for their knowledge level.  Some preparers just won't admit it, which is what you saw.  Licensing at least proves a minimal level of competency, which is more than taxpayers have now.

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I agree completely with Bulldog Tom and Corduroy Frog.  The IRS, given this power, will not prosecute the well-known fraudsters - because they already have that authority, they already have the necessary information, and they already know (or could easily retrieve from their own databases) who those persons/companies ARE.

They have not.  They will not - except for a few really egregious and public, but relatively small-potato, cases, to remind people that they can, as well as to make the publilc think they actually give a rip.

This power, if given, will be used to intimidate those who disagree with IRS positions.  I would expect for it first to be used against the most-successful Representation groups of those who are not nationally or regionally known.  The ones who stop the service from wrongfully destroying people's financial lives over taxes assessed but not actually owed.  They will leave the less-successful groups to flop and flail - and fail - at protecting taxpayers.  And any tax preparer who protests an audit finding will do so at risk of their professional future.  Unless you want to show me, in the text of the bill itself, where preparers are protected against claims made by any IRS employee or internal group with whom they have had recent cases heard.  

Disagree with me all you want.  But ask yourself, first, when the last time was that you personally saw a *taxpayer* (not a tax pro) treated with respect (and not as a suspect) by the IRS, and how fast they will turn that same level of scorn and suspicion on you if they are given this power.

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During my 45 years as a professional accountant, I have been involved with several adversarial audits with aggressive auditors.

However I don't ever remember being subject to scorn or feeling intimidated.

In fact the two most aggressive audits I was ever involved with were not tax audits.

The first was an Employment Tax Audit where the auditor was determined to prove than one or more of my client's 1099 subcontractors were in fact employees.

This auditor didn't back off until his supervisor stepped in and told him to wrap up the audit and move on.

The second was a Workers Compensation Audit where the auditor was determined to prove that several of my client's employees were performing work

that should be classified in a higher cost class code. This auditor actually went to my client's facilities and followed the employees around to see what kind of work

they actually were doing. This auditor ended up prevailing which cost my client an additional $ 6.000.00 in Workers Comp Fees.

 

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I haven't had unprofessional experience with IRS auditors either.  When all the facts came out, they were usually more correct than my clients, who often were less than forthcoming with me when reporting their income or expenses.  Like CBS, my worst experiences have been with State Unemployment auditors, who were definitely more hostile and wrong than IRS people.  I've had to go to supervisors to get proper relief a couple times.

But we are speaking of the IRS as it exists now.  Not of the IRS when they receive regulatory powers.  My guess is the regulators will not be the same people as the auditors.

 

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I do not see what the fuss is about.  I would guess that almost everyone on this board is already regulated by Circular 230.

This legislation is aimed at the approx. 50% of the preparers that are not EA's CPA's or Tax Atts.  

The TPAO has been pushing for this legislation every year.     

From Forbes

https://www.forbes.com/sites/irswatch/2021/05/14/bidens-plan-to-regulate-return-preparers-is-welcome-news/

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Having passed the original test in 2012 I can attest to the fact it dealt with huge chunks of tax information to which my 40 year practice had no exposure. How I passed I will never fully understand. If it had dealt with more common everyday tax matters which folks like myself see every year it would to my thinking be pretty fair. The fall back position was "You have three or more shots at passing the test." I had to drive in excess of 150 miles to find a cramped testing facility in a non-descript hard to find tiny mall over in Richmond Virginia. I support their ability to remove PTINs from poor practitioners but not this scheme as originally created.

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  • 3 weeks later...
On 9/4/2021 at 1:57 PM, Catherine said:

But ask yourself, first, when the last time was that you personally saw a *taxpayer* (not a tax pro) treated with respect (and not as a suspect) by the IRS

No one seems to have noticed that I specified taxPAYERS, not pros, being treated as suspects and not with respect.

Yes, the IRS treats pros with respect - at this time.  If given further, and largely unconstrained, power over our professional lives and careers, and we then take a stance disagreeing with them - how long will it last?  Snowballs and hell, anyone?

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IRS actually did go after one of the big fish, Liberty.  A few years ago they shut down several huge franchisees who owned a lot of offices.  They also went after corporate.  The owner, John Hewitt, had to resign and tender all his shares.  His sycophants were removed from the board and their replacements made some of these decisions under court orders.  Does anyone know what happened to Liberty franchisees?  I see some of their offices around, but I believe the company has now become a franchisor for diverse businesses like vitamins and rental centers.  I just wonder how the tax franchisees are faring.

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Excellent information Sara.  I have to compete with the big box franchises, as their primary appeal is for customers who want to rush their returns in and get refund money as soon as possible.  In fact some of these taxpayers rush to claim their children before their ex-wife can legitimately claim them.  Then when ex-wife comes to one of us, we can't electronically file because her kids have already been claimed.  We have H&R around every block, also JH.  If we don't have Liberty then that's one less we have to worry with.

I'm not really bashing them - I can't compete with their resources that they have to prepare a return from check stubs and the like.

 

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Don't compete with the big box stores. Don't compete with national CPA firms.

Compete on your (maybe year-round) customer service to clients who want their taxes done right. You can also research your own niche and become that expert: investors, small biz, virtual, whatever.

If Liberty goes out of biz in your area, do you even want those customers?!

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Note, @cbslee that you are talking about *state* licensing rather than federal.  Also you are comparing apples to kumquats - the staffing level differences in OR and NV/Las Vegas is far more likely to be due to the clientele and types of transactions occurring in the gambling centers (that draw many thousands of national and even international visitors, daily) versus more-normal operations.

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