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More tax preparer oversight questions

In looking at the IRS proposal to develop standards for paid tax preparers and ways to enforce any such eventual guidelines, I'm transported back to my college days in Journalism 101 class.

Irs_logo_208 My J-School instructor back then laid out the basic questions any budding Brenda Starr or Jimmy Olsen should always ask: Who, What, Why, When, Where and How.

That's the same process the nation's tax agency is using. But during a recent discussion with some of us on the Taxpayer Advocacy Panel (TAP), the preliminary answers to those core inquiries seemed to raise more questions.

Now the TAP meeting was open to the public. And there were no big secrets revealed by the IRS rep who joined us to discuss paid tax preparer issue.

But since I was there as a TAP member and not as a reporter, I'm going to give y'all an overview of the issues raised rather than a strict, fully attributed who-said-what account. I promise you'll get the information, but this way seems fairer to all since, as I said, I was there as a "person," not a reporter.

That said, I'm going to use my journalistic questions as the delivery format. As is often the case in life and reporting, the questions and answers overlap. But I'll try make such segues as logical as possible. So here goes.

I'm starting with what is probably the easiest question to answer. It's also the one at our meeting that caused the least uproar.

The main reason the IRS is looking into more formalized regulation of tax preparers is that more and more of us depend on paid professionals to help us file our taxes.

Other groups already have expressed concerns about ill-prepared and often criminal preparers who not only cost the Treasury tax money, but also defraud their clients. Among those who have called for various types of tax pro regulation are federal lawmakers, oversight agencies such as the Government Accountability Office and Treasury Inspector General for Tax Administration, consumer protection groups, some professional tax organizations and even the National Taxpayer Advocate.

So finding a way to make sure that tax pros are competent and honest is a good thing, at least theoretically.

But now we get to the fun questions.

You'd think this would be an easy question, too. Think again, especially when you have a group of tax professionals, tax geeks and IRS employees all in one windowless meeting room!

The IRS says it wants to issue a comprehensive set of recommendations by the end of the year on ways to ensure that tax return preparers meet, in the agency's words, "both uniform and high ethical standards of conduct."

OK. No problems there, right? As noted in the Why section, everyone wants to know that their tax pro are competent and honest, both with clients and Uncle Sam.

But what exactly does "uniform" mean?

Several tax pros on TAP flat out told the IRS representative that they distrust IRS motivations in this regard. And they point to Notice 2009-60, the announcement of this tax preparer vetting proposal, as exhibit one. That notice specifically says the IRS also wants to find ways "the tax return preparer community can help increase taxpayer compliance."

Now while all honest tax preparers want their clients to fulfill their legal tax obligations, there was concern among some of the tax pros on TAP that the IRS has for years been "trying to turn preparers into agents, trying to get preparers to essentially conduct pre-audits of clients while preparing taxes."

Obviously, the tax pros on the taxpayer panel had issues with what they see as a potential conflict of interest when it comes to dealing with their clients.

But there was less consensus when it came to the next question.

There are all types of tax preparers out there.

We have CPAs, Enrolled Agents (EA), tax attorneys, accountants, unenrolled practitioners (i.e., preparers who don't have as broad an authority to represent clients against/before the IRS), franchise tax company preparers, mom-and-pop storefront tax offices, your uncle who studied accounting at college, your neighbor who's done the whole block's returns for years. You get the idea.

So the big question becomes just who is subject to these ultimate tax preparer rules?

The EAs, CPAs and attorneys on the panel were quick to point out that they already have to meet professional standards to attain and retain their accreditation.

Typically, said the IRS rep in charge of this project, the agency finds there are three categories of preparers, regardless of whether any professional initials follow their names:

  1. Competent and ethical

  2. Ethical but incompetent

  3. Unethical regardless of competency level

The IRS's concern is how to deal with categories two and three without inordinately impinging on category one practitioners.

No argument there.

But the TAP members also wanted to make sure that the agency was fully aware of and took into consideration ways to deal with entities that don't strictly fall into the "tax preparer" definition.

This includes Offer in Compromise (OIC) mills. These are companies that say they can dramatically lower a taxpayer's huge IRS bill, and whose advertisements (usually on late-night TV) make it seem like they have some magic process or a special "in" with the IRS.

In reality, they typically just follow the OIC filing rules that most people don't know about or understand. And while getting help with an atypical IRS issue is OK, we just want to make sure that people aren't oversold a service.

Bonus question: Is software a preparer?
And then there is consumer tax software.

One concern with software is that sometimes the programs are used by a person who charges others for preparing their returns, which then are submitted by the taxpayers as if they had filled out the forms on their own.

Even when the software is not misused like that, some argue that it is in effect a "paid preparer" for millions since the computer program does so much of the 1040 et al form completion automatically.

Software also needs to be considered, said some of my colleagues, because the programs tend to be "aggressive in creating refunds for customers." Whether that's through the software's interpretation and/or application of tax law or simply its marketing, people still tend to buy products that they think will get them lower tax bills.

Does the off-the-shelf or downloadable software arrive at such tax calculations appropriately and accurately?

How would, could or should any eventual return preparer guidelines apply to tax preparation software?

Software companies, feel free to let me -- and the IRS -- know your position on where you stand in this oversight proposal. Should your product be considered a de facto paid preparer?

How, When and Where
OK. So how, when and where do you go to let your thoughts be known on tax preparer oversight?

When TAP met with the IRS rep last week, she had already received 250 comments.  You can be commenter 251-plus as long as you send your written position to the IRS by this coming Monday, Aug. 31. Notice 2009-60 has the snail mail address, or the delivery address if you're in the D.C. area and want to personally drop off your remarks.

If you prefer, you can send your thoughts electronically to [email protected]. Be sure to put Notice 2009-60 in the e-mail's subject line.

If you'll be attending the Nationwide IRS Forum in Dallas (Sept. 8-10; look for me there, as well as stop by our TAP table!) or Atlanta (Sept. 22-24), you also should be able to talk with IRS reps there about this matter.

And the agency also will be meeting with professional groups and other tax filing "stakeholders" and through October. If you're a member of such a group, be on the lookout for details from them.

The IRS staff plans to consolidate all the gathered info into recommendations for the Commissioner by mid-November. Then he will announce the findings and proposal by the end of the year.

Final thoughts
My general assessment of the TAP conversation with the IRS rep regarding the tax preparer regs is that the agency truly is open, at least right now, to all ideas on this topic.

And despite the dismissal of the project by some of my TAP colleagues as "another attempt to get preparers to do IRS work for it" and "a government solution looking for a problem," I personally support the effort to somehow police the inept, ill-equipped and unethical preparers that make tax filing an even more difficult process than it already is.

The malfeasance and misfeasance of such preparers costs not only their clients, but all taxpayers who are properly filing and paying our share.

The tricky issue, of course, is the "somehow." And that's why I'm glad I just get to make suggestions and let the IRS sort through mine, yours and everyone else's in an effort to find a  fair and easy way to implement an oversight system.

Be a part of the process, too. Let the IRS know what you think. You don't have to be a tax professional to comment. In fact, whatever comes of this will ostensibly be to help you and me, regular Jane and Joe Taxpayers. So let the IRS know what you expect of it and the person you pay to file your tax returns.

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