Let Me Tell You a Little Secret

Gavel

  The Secret Revealed

I have a secret that I’m about to reveal that may shock and disturb you.  It’s a little known fact, but it is very true.  This secret is so serious that is costs untold millions of dollars in lost revenue every year; possibly even billions.  Few speak of it and even fewer know about it.  Did you know that the IRS does not have the authority to regulate tax preparers?  Shocking isn’t it?  What’s more shocking to me is that their attempt to regulate tax preparers has been overturned in a Supreme Court ruling.  What that means to you as a tax payer is that in many states without regulations regarding this industry, there is no consumer protection against unqualified tax preparers.

A Little History

When I decided to open Storehouse Financial Management Services, LLC, I was surprised at how easy it was to do.  My plan was to take my accounting degree and put it to use to help support my family outside of the traditional work model.  My plan was to provide bookkeeping and tax services to small businesses and some financial coaching to individuals needing help with the family budget.  I had been doing these same things for years for my employer and friends so I had the experience.  What I didn’t have was a license to do it on my own.  I researched the web for information on what licenses were needed and actually found very little.  So little, in fact, that I actually called the state and institutions who I determined should be responsible for such licensing.  I wanted to be sure I was not missing anything and they assured me that I was not.  With that information I obtained the licenses that were required and went to work.

The End of the Beginning

A few years later I started receiving information from the IRS that there would be a continuing education requirement and that a test of basic skills would have to be passed for everyone preparing form 1040 for the general public who was not a CPA or an EA.  I thought to myself, this is great!  We finally have something to bring credibility to the industry at large.  Something that would let tax payers know that the tax preparers they are using who are not CPA’s and EA’s are qualified to prepare their returns.  It’s the RTRP designation!  I’m going to be a Registered Tax Return Preparer.  That’s a good thing, right?

Well apparently not to some tax preparers.  Not long after I paid for, took and passed the RTRP exam,
received and framed my certificate, the IRS was sued and told that they did not have the authority to regulate tax return preparers.  Persons who had paid for, but had not taken the test were issued refunds for the testing fees and many of us were left shocked and amazed.  Yes, the IRS was sued by tax return preparers in Loving vs. IRS and lost.  Wow!

The problem was that Congress never gave the IRS authority to regulate tax preparers and by making the attempt to require a license of sorts, the IRS over stepped its authority.  OK, that’s fair.  We should all play by the rules, the IRS included.  So what now?

Returns of the Wild, Wild West

Back to square one.  There are no federal regulations for tax preparers and the same is true in many states.  So at any given time, any given person, for any given reason can begin preparing tax returns regardless of their ability, experience, knowledge or education.  There’s almost no way to know who you’re dealing with.

The problem with this is the tax payer, many of whom do not know or understand what is on the return, is responsible for whatever the return contains once they sign and authorize it to be submitted to the IRS.  Since many tax payers are looking for a refund, some tax preparers will enter fraudulent information in a return to create or enlarge the refund amount which makes the tax payer very happy.  They come back year after year because they’ve received such “great” service.  Years later, they receive a letter from the IRS regarding the inconsistencies that were found in the tax returns along with an adjustment to tax due.  On average these letters are received two to three years after the return is filed so the tax payer now has interest and penalties due on the amounts owed from the time the return was filed until the time the last cent is paid.  Many of them don’t understand why.  Many of the preparers responsible are not available to help sort out the mess.

My personal opinion is that it’s unfortunate and a disservice to the general public to have an industry this large and important to go unregulated.  There is so much at stake for the tax payers personally.  Fines, penalties, possible jail time, and the sheer aggravation experienced once the fraud is discovered could be mostly avoided.  Then there are the claims of a whole new industry promising a quick and easy fix to the IRS problem that preys on unsuspecting tax payers and often leaves them worse off than they were before.   The situation for the federal and local governments in terms of losses in income and the services dependent on that income isn’t much better.  Government spokespersons are often speaking of budget shortfalls.  Ever wonder how much of that money is lost due to taxpayer (preparer) fraud?

Don’t get me wrong, there are many very honest and credible tax preparers in the industry.  They’re the ones who aim to prepare a correct tax return with the information they have regardless of whether a refund is due or how much it is.  They’re the ones I see at the continuing education courses every year, even though they are not required to be there.  They are the one’s supporting the idea of regulating the industry for the protection of their livelihood and the people they serve.  They’re the ones who need you to let Congress know that mandatory regulation of the tax preparation industry is long overdue.

 

Want to know more?  Check out these resources.

 

The Ruling

United States Court of Appeals – District of Columbia Circuit

 

Pro

 Forbes.com

Appellate Court Delivers Blow to IRS and Taxpayers Nixing Tax Return Preparer Regs

 

Con

Institute for Justice – Loveing vs. IRS

Challenging the IRS’s Authority to License Tax Return Preparers

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