Why tax return preparer regulations are long overdue
If you want to get a haircut or a manicure your barber or manicurist needs to complete a qualifying course and complete continuing education.
If you want to get your tax returns prepared you can by a person who may or may not have a Preparer Tax Identification Number (PTIN), may not be in this country legally, yet they hold themselves out as a qualified tax return preparer.
There is an underground black market of tax preparers known as “ghost preparers”. These individuals prepare tax returns on the IRS site and most state tax sites for free and charge the unsuspecting taxpayer for tax preparation fees. There are back-door operations that are quite complex operating so-called service bureaus offering tax preparation signed with a valid PTIN offering huge refunds while preparing tax returns with false information, e.g. children who do not belong to the taxpayer, refundable credits, and Schedule C with losses to reach the “sweet spot” for Earned Income Tax Credit.
When was the last time you heard of a back-door barbershop or manicurist operation offering “ghost haircuts”? This industry has gotten out of control with no regulation, and it is hurting the taxpayers and the Treasury. The taxpayers most susceptible to these scams are usually the low-income, disenfranchised taxpayer looking for quick and “free” money.
There is also another group of taxpayers seldom mentioned looking for “free tax” money. When an undocumented worker applies for a job, it is a well-known fact that many will “invent” a social security number and an employer will use it to get someone to work, usually ag-labor or other jobs that are undesirable and will withhold taxes. These undocumented workers will never receive SS benefits, Medicare benefits, cannot apply for unemployment and are usually afraid to report their employers to the authorities for payroll abuses. The estimated withholdings are in the billions of dollars and Treasury and state taxing agencies will never have to pay the benefits on these withheld taxes.
A predatory tax preparer who is familiar with these taxpayers can easily market this group to prepare false tax returns and claim refunds for these workers, totally illegal.
We believe the passage of HR 4184 and S 1192 are the vehicles we need to setup a structured paid tax preparer program that is acceptable.
- The 2011 Registered Tax Return Preparer (RTRP) program was a good start; however, it had some flaws and did not have congressional backing. Bringing back the RTRP program with some more defined procedures will work for taxpayers and the Treasury.
- The PTIN is the key to registering all those who prepare tax returns, whether paid or volunteer, e.g., VITA. However, the IRS authority to revoke an incompetent or fraudulent preparer’s PTIN must be structured so that the IRS must give a warning and the reason for an upcoming suspension of PTIN, offer a time frame for the PTIN holder to respond and if suspended or revoked, time for a quick appeal. If the IRS is wrong and a PTIN is suspended during tax season it could potentially cause economic harm to the PTIN holder. The IRS may not be the ideal agency to conduct these suspensions, we recommend language in the law for flexibility of these provisions to be amended as time goes by.
- Clarify that certain non-signing preparers – those persons who prepare returns under the supervision of an attorney, CPA or enrolled agent– are not required to obtain a PTIN.
- Require a GAO study on the sharing of information between the Treasury Department and State authorities regarding PTINs issued to paid return preparers and preparer minimum standards. Some states like California and Oregon have paid tax return preparer programs in place. We believe states that have a registration program in place must include an approved IRS federal portion in their programs.
A federal paid tax return preparer registration program is desperately needed and is long overdue, now is the time to take action and get this important legislation into the reconciliation bill now in congress.
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Carlos C. Lopez, EA
CEO of Latino Tax Pro
Call or text us: 866.936.2587