Saturday, July 25, 2009

Why it's hard to count the number of tax preparers out there

Here are some fascinating excerpts from a DOJ tax complaint filed earlier this month about a preparer named Derrick Jackson, also known as "Glenn Dent," who filed returns under multiple DBA business names, using preparer IDs that didn't actually belong to him. (In one case, he used an SSN in the "paid preparer ID field" that belonged to a person who had died two decades ago. I guess "Dead preparers tell no tales." In another case, he used an EIN that belonged to an entirely unrelated franchise where he had never worked.)

8. From 2002 through 2004, Jackson prepared at least 288 federal income tax returns for others, using the name Derrick Jackson and the business name International Tax and Accounting Services. In 2005, he prepared at least 149 tax returns using the same business name and his social security number. And in 2006, he prepared at least 76 federal income tax returns for others under the alias Glenn Dent and the business name Tax Wisdom.

9. To disguise his true identity, Jackson sometimes used the alias Glenn Dent (d/b/a Tax Wisdom) when he prepared tax returns. When he prepared these returns, Jackson used a social security number which belonged to a person who died in 1977.

10. The electronic identification number (EIN) that Jackson used for his business Tax Wisdom, and listed on tax returns he prepared, does not exist. The EIN that Jackson fraudulently used to file these returns belonged to a Jackson Hewitt Tax Service franchisee that was not affiliated with the defendant.

The rest of the complaint goes on to detail the many bogus deductions and credits the preparer procured for the customers of his tax prep business.

But just from the paragraphs I've quoted above, you can see why the IRS would say it has a hard time counting up how many preparers, or knowing exactly who prepared a return.

It's disturbingly easy for a preparer to write down another preparer's tax ID number in place of his own. Many clients routinely bring their old tax returns from previous years when they visit a new tax preparer. All the information a preparer needs to steal is right on the client's copy of his old tax return from previous years.

Any IRS proposals to regulate tax preparers will need to deal with the issue of identity theft among preparers. Theft of preparing identification numbers obtained from former clients (unwittingly!) or from former employees of legitimate tax preparers.

All of this is only made harder because there's an alphabet soup of preparer ID numbers that paid preparers use on their tax returns, even when they are trying to comply. Some use their Social Security numbers (SSNs), some use their Employer Identification Numbers (EINs), some use their EFINs (Electronic Filer Identification Number), and some use PTINs (Preparer Tax Identification Numbers.) And the IRS has 22 different databases to try to keep track of it all.

Here's what the AICPA says:

“The IRS currently is not able to track, monitor or control preparers’ activities and compliance, or even determine the total number of paid tax return preparers,” said TIGTA Inspector General J. Russell George in a statement. “As a result, the IRS currently is not capable of ensuring that paid preparers adhere to professional standards and follow the law.”

TIGTA found that tax preparers are using multiple ID numbers, making it difficult to keep track of them. Even when the IRS does have tracking data, it may not be accurate. Using a statistical sample of 139 tax preparers, TIGTA found that multiple identifying numbers were used by 93 of them. The names of the 139 preparers in various systems were inconsistent 45 percent of the time. There were inconsistencies in 24 percent of the preparers’ street addresses listed in the various systems, while telephone numbers varied 40 percent of the time. In 10 instances, IRS records showed the preparers were attorneys, although TIGTA’s research showed that only two of them were members of their state bar association. Seven preparers were listed as being both attorneys and CPAs, but TIGTA could verify that only one of them held both designations.

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