Scammers and cheaters make the tax prep process harder for the government, taxpayers and tax preparers alike. Professional practitioners shared what they would do to shut the criminals down.
“I’d aggressively prosecute preparers who engage in fraud – and also the taxpayer,” said Morris Armstrong, an Enrolled Agent and registered investment advisor with Armstrong Financial Strategies in Danbury, Ct.
“I’d make every person who prepares returns other than his or her own be licensed,” said EA Lawrence Walkden of Snohomish And Monroe Accounting & Tax, in Monroe, Wash.
“ID theft is out of control,” noted San Antonio EA James Berardi. “Hang them.”
The Barber Conundrum
Many preparers echo the commonsense call for the IRS to act with maximum authority against bad preparers and fraud. For instance, making the reporting of unscrupulous preparers easy and knowing “that the IRS would actually investigate and shut down bad preparers” heads the wish list of EA Terri Ryman at Southwest Tax & Accounting in Elkhart, Kansas.
Ryman would also “institute a tracking mechanism to track computers or IP addresses of returns that are supposedly ‘self-prepared’ and get them shut down immediately. Involve local law enforcement in the effort. Audit more ‘self-prepared’ returns, ask taxpayers questions to ferret out that someone else actually prepared the return and persuade them to report the preparer.”
The IRS Criminal Investigation division has obtained some 200 indictments against preparers annually over the last three fiscal years. Slightly fewer than three-quarters of the investigations result in jail time. The AFSP and PTIN initiatives (https://www.irs.gov/tax-professionals/ptin-requirements-for-tax-return-preparers) are among the most recent examples of IRS efforts to organize preparers with no or limited credentials.
Regulations requiring education connected to the PTIN system can head off a lot of abuse, said Kerry Freeman, EA at Freeman Income Tax Service in Anthem, Ariz.
“This industry … requires professionals to call out our peers who say it’s unfair to require education goals,” Freeman said. “Many tax professionals with 10, 20 and even 30 years in this industry should want to make this profession better than your local barber. Every state requires your barber to have a license, but the IRS does not require the same.”
Preparers also frequently propose one answer to fraud: computerization. Jeffrey Schneider, an EA in Port St. Lucie, Fla., for example, wants his clients to use his secure portal continuously. “I never send items with SSNs or sensitive data via e-mail,” he said.
“Make over-the-counter, DIY tax software single-user, and the person must present an ID that is registered with the software they purchase,” suggested Kimberely Bates, an EA in Minneola, Fla., and Money Coach founder. “I can’t tell you how many times I’ve been hired to represent someone before the IRS only to find out that a neighbor, co-worker or so on used TurboTax to do their taxes for cheap and made critical mistakes, landing my client in hot water.”
‘Add some teeth’
“I’d mandate 30 hours per year of CE for all PTIN holders,” said EA John Dundon, of Taxpayer Advocacy Services in Englewood, Colo. “I’d also insist that each preparer have a publically listed, fixed location for the duration of the filing season and have at least one stated mentor who’s licensed as an Enrolled Agent.”
Amber Gray-Fenner, EA and president of The Gray Agency in Albuquerque, N.M., would work “to add some teeth” to the PTIN system. “I know the IRS can find patterns in PTINs,” she said. “They need to get more aggressive in examining problem PTINs and pulling the PTINs of people who are actively working to undermine the tax system.”
“The IRS has to be given the authority from Congress to begin a strong verification process for all preparers,” said Amherst, N.Y., EA Jeff Gentner. “This would include annual registration with proof of competency, either through approved CE or testing.”
‘Do the math’
All returns need to be signed if prepared by a tax professional, Gentner added, “and self-prepared returns need to advise taxpayers that there are severe penalties for filing a fraudulent return. Educating the public about selecting a tax professional,” he said, “should be on every TV and radio station and advertised on social media throughout tax season.”
“I’d like to see more media discussion about the value of seeking out a professional tax preparer, and that choosing someone based on price may not serve folks well,” said Debra James, an EA at Genesis Accounting & Management Services in Lorain, Ohio.
Preparers do seem especially well-positioned to be the eyes and ears for fraud. Armstrong, for instance, heard about someone who does taxes on the weekend and reportedly makes “about $15,000 per weekend. The area where he works is one of the poorer areas of Connecticut,” Armstrong said. “Do the math. I strongly doubt that those returns are legitimate. I’m very much in favor of having the IRS regulate non-enrolled preparers.”
Alfred Giovetti, a CPA in Catonsville, Md., and member of the National Society of Accountants executive committee, said his group went to Washington to recommend to congressmen that refunds not be paid before Feb. 1, “since a very large percentage of refunds paid ion January are from fraudulent returns. It appears that, except for a very small percentage, honest people don’t file in January.”
“I don’t want over-regulation,” said CPA John Stancil, in Lakeland, Fla., “as that would allow some competent preparers to maybe fall through the administrative cracks and lose the right to prepare returns. The biggest issue here is unlicensed preparers not signing the return as a paid preparer. I don’t know how you stop that unless you require all returns to be submitted by a paid preparer – an unattractive option.”