Friday, September 10, 2010

Should taxpayers be enforcing the new preparer regulations?

Professor Nellen thinks so.

If Congress and the IRS want to reign in these unscrupulous preparers, they really need to (unfortunately) add a very large penalty to the tax system to be imposed on taxpayers who file a return they paid someone to prepare and did not get that preparer to sign the return and list his identifying number. Such a penalty would keep taxpayers away from unscrupulous preparers who would then go out of business.

I can see lots of practical problems with this.

Taxpayers generally don't file their own returns any more. Their preparers electronically file their returns for them. How can a taxpayer know whether her preparer "signed" her electronic return or not?

The taxpayer can and should insist on a signed paper copy of her return, but how can she know that the electronic version of the "signature" her preparer submitted to the IRS matches the information on the paper copy of her return? Moreover, many low-income taxpayers lead very chaotic lives, due to frequent moves, evictions, foreclosures, and other difficulties. Holding on to the original signed paper copies of their return can prove difficult for such taxpayers.

Taxpayers don't routinely receive any confirmation directly from the IRS that their return was filed aside from getting a refund check in the mail or via direct deposit. On a balance-due return or a zero-balance return, the taxpayer gets no confirmation at all that her return was ever filed, let alone that it was "signed" by her preparer.

In this day and age of identity theft, it would be very easy for an unscrupulous paid preparer to use another legitimately registered preparer's name and PTIN. After all, the unscrupulous paid preparers can easily get the information that information from looking at a copy of a return prepared by that legitimate preparer.

How does he get to look at that information?


Most preparers ask their new clients to bring in copies of last year's return, so he can copy the name and PTIN of a legitimate preparer right off one of his clients' prior year's returns.

For that matter, it is also far too easy for an unscrupulous preparer to file a tax return for a person entirely without that taxpayer's knowledge. The Treasury Inspector General for Tax Administration (TIGTA) and the National Taxpayer Advocate (NTA) both report that identity theft is a huge problem for unwitting taxpayers.

I don't think the answer is to require that taxpayers to enforce the law requiring that paid preparers sign their returns at the time of filing.

I'd like to see a requirement that paid preparers must authenticate their identity and their registered PTIN status to their clients BEFORE they are allowed to request any sensitive information including W-2s, bank statements, old tax returns, etc.

The whole issue of requiring all paid preparers signing returns seems problematic to me. There are still many wrinkles to be worked out.

What about a taxpayer who wants to efile her own return, but pays a preparer to assist with preparing part of her return, say one particularly complicated form, but does not want him to prepare the entire return, because she feels confident she can handle the rest of the return, and it would cost too much to get his help on the remainder of the return.

What about a taxpayer who pays a preparer to prepare her return, but who disagrees with some of its contents when she comes into review it, and asks for a paper copy to think it over. She ultimately decides to use it as an advisory input into her own self-prepared return? Does she have the right to file that return as long as she retains a signed copy of the unfiled draft return he prepared for her.

What about a taxpayer with a complicated tax problem who consults several paid preparers until she receives the help she needs on several tax issues related to her return? Is she required to get all the different preparers to sign the various parts of her return?

Unless and until there are satisfactory answers to these practical difficulties, it is unreasonable to place penalties on taxpayers who file returns that were not signed by their preparers. The reason they seek out the help of preparers in the first place is that feel ill-equipped to deal with their tax law responsibilities to begin with. Some may have difficulties with English, disabilities that make it hard to read, and a host of other difficulties.

Instead of imposing a penalty system on taxpayers to enforce the preparer return-signing law, I suggest a taxpayer education program to inform taxpayers that return preparers who are unable or unwilling to authenticate their registered status prior to requesting their confidential financial documents are operating outside the law and therefore unworthy of their trust.

In addition, the government already sends out "secret shoppers" to paid preparers to monitor whether they are behaving in an unscrupulous manner, including failing to sign a return and/or to include a preparer ID number. They should surely continue to do that.

No system will ever be perfect, but educating taxpayers to let them know that all law-abiding paid tax preparers should be willing to provide their PTINs and sign their returns is a strong step in the right direction.

No comments:

Post a Comment