Everyday people are looking for new and innovative ways to earn a second income. Whether it’s driving strangers around town with Uber or becoming a grocery shopper delivering groceries door to door to customers with Shipt, there’s no shortage of work for those looking to hustle.
However, for accountants, perhaps a more conservative, small tax preparation business would be a better fit for your personality. For you, this could be a decent-sized paycheck during the tax season. I mean, how hard could it be? If you’re already in the accounting profession, honest, smart, and trust flows is built into your DNA and people might already assume you’re knowledgeable about the tax law. Why not setup shop helping family, friends, and other acquaintances with their taxes and charge them a fee?
Congress Introduces the Tax Return Preparer Competency Act
Not everyone might be as honest or possess the right skillset as you. Unfortunately thieves will pry on the innocent and naïve and the tax preparation business is no different. The alternative will seek to commit tax refund fraud, identity theft, and similar crimes in an effort to hurt innocent taxpayers. During the first month and a half of the 2016 tax season, the IRS had already identified more than 42,000 tax returns with nearly $227 million claimed in fraudulent refunds, according to the Treasury Inspector General for Tax Administration. Because of the growing concerns of fraud and identity theft, tighter and stricter regulations are emphatically in order.
These kinds of malicious attacks introduced the Tax Return Preparer Competency Act which focuses on reducing tax preparer fraud, requiring professional tax preparers to undergo examinations, submit a background check, and take annual continuing education courses. One of the Republican lawmakers, Diane Black of Tennessee, said in a statement that an estimated 80 million Americans turn to tax preparers to assist in filing their yearly returns and that there are no minimum standards to stipulate who can charge for these services. This lack of accountability puts Americans at an unnecessary risk and contributes to rampant improper payments within the tax system.
There’s Less Regulation Than You Think
Approximately 1.2 million tax preparers are making a living deciphering the near 74,000-page tax code for taxpayers. The IRS reported 63 percent of all returns were done by tax preparers in 2013 and estimates are that about half were filed by unregulated preparers. To further add, tax preparers’ face less regulation and licensing than either a hair stylist or barber would be required to complete. This potentially means that anyone in an unregulated state with a basic means of understanding the tax code, possess an internet connection, and understands how the popular software programs such as TurboTax and H&R Block work can start preparing returns. The question is, would you trust someone in this capacity even if they are a family member or friend?
Regulations and Certifications for Tax Professionals Can be a Good Thing
When certain professions are regulated with exams, required hours in the field of study, and continuing education programs to maintain licensing is never a bad thing; it makes you as the professional look more accredited and professional than the other guy. This, in turn, boosts your rates. In the tax preparation business only certified public accountants (CPA’s), tax attorneys, and Enrolled Agents (EA’s) are required to be licensed and educated practicing before the IRS while the rest of the tax preparation universe is left to do as they please. You might be a little uneasy going to an individual who may not be licensed but if you’re on a tight budget, you might reconsider. So, if you’re looking to embark in this profession and haven’t earned your CPA or EA licensing then here’s how you could benefit from regulation and continuing education.
The Accuracy of Tax Filings Would Increase – everyone makes mistakes and a tax preparer is no exception. People often get confused as to who would be responsible for an inaccurate tax return and the answer would be the taxpayer. The taxpayer is responsible for his/her tax return and that all information submitted to the preparer is truthful and accurate to the best of their knowledge. On the flipside, if a return is submitted to the IRS with a reckless disregard for the tax law and willfully deceiving the tax code then a preparer would be liable.
The Government Accountability Office recommended that Congress pass legislation allowing the IRS to regulate paid tax return preparers in order to “promote high-quality services from paid preparers, improve voluntary compliance, and foster taxpayer confidence in the fairness of the tax system”.
Low-Income Taxpayers are Faced with the Greatest Risk – typically low-income tax filers seek to file their tax returns because of their eligibility for the Earned Income Tax Credit and any other deductions they might be eligible for given their tax situation. For them, these tax credits are advantageous and they’ll seek assistance from a preparer.
Approximately 60 percent of EITC recipients used a paid preparer to file their return, which more than three quarters of them are unenrolled preparers. Because of their limited knowledge of the ever-changing tax code, the margin of errors may increase dramatically.
- Regulation Would Provide a Uniform and Transparent Fee Structure for Tax Professionals – often times for tax professionals, there’s no pre-set fee structure which leaves tax preparers to charge whatever they feel is reasonable. Some might charge fees for hundreds of dollars provide customers incomplete estimates, or they may even refuse to provide a reasonable estimate at all. A transparent and clear structure would provide a taxpayer a clear estimate as to the cost of services without feeling like they’re overpaying.