Monday, July 27, 2009

Criminal charges and penalties for unscrupulous tax preparers

The Tax Lawyer posts some heartening news about criminal crackdowns on fraudulent tax preparers here. He comments:

The IRS’s lack of a tax preparer monitoring regime is catnip to con-men and they are taking full advantage of it.

As I pointed out in an earlier post, in theory, the IRS does monitor tax preparers who e-file, which are the majority of returns these days, but apparently it doesn't have the resources to do it very well.

The Tax Lawyer also links to arguments against greater preparer regulation by Joe Kristan, who says that such regulations will drive non-compliant preparers underground.

The reality is that some non-compliant preparers apparently already operate underground. If there are paid preparers who are willing to fabricate fraudulent and fictitious deductions and credits on their clients' returns, then why should we expect that they will put their own real names and identification numbers on the return to make it easy for the IRS to monitor them?

It's easy enough for a fraudulent preparer to steal the identification number of another preparer, after all. It's on the copy of every return a legitimate preparer has ever prepared. So clients who come in to an unscrupulous preparer with copies of prior year returns prepared by a legitimate preparer automatically give the evil new preparer access to the legitimate preparer's identifying information.

There are important practical and technological issues the IRS needs to address to deal with this problem. Ultimately, maybe preparers need to provide biometric data (high-tech fingerprints or retina scans) or at least secret PINs not revealed to others when they file returns. Although some might say that collection of biometric data is an invasion of the preparer's privacy, anyone applying for an EFIN (Electronic Filing Identification Number) as an electronic return originator already needs to submit his fingerprints to the IRS.

An EFIN is effectively a license to electronically move large amounts of money from the government's bank accounts into other people's bank accounts (or, in some cases, into the preparer's bank account.) And it all happens very quickly. With the emphasis on e-filing and direct deposit of refunds, the IRS has very little time to scrutinize returns before moving the money.

No comments:

Post a Comment