Here is Robert Flach’s response to my post titled IRS Audit Red Flags: A Rebuttal of Robert Flach.
I will try to make this brief.
Robert says,
I certainly agree with Pete when he says, “the odds are better that a return will be accurately prepared by someone who has more training in tax law than by someone who has less training in tax law“. Hey, it is a no-brainer. But I certainly do not agree with the statement, “CPAs tend (not an absolute, Robert) to be more qualified than non-CPAs in the accurate preparation of tax returns”.
Robert has probably prepared more tax returns than I have. He’s certainly been doing it longer. And I am even willing to concede that he’s forgotten more tax rules and regulations than I currently know. But that is decidedly not the point!
The issue is not whether some non-licensed individuals are better tax return preparers than some CPAs. Of course, that’s true. And some medical school dropouts are better physicians than some licensed quacks. And some 25 year old man playing hoops in Harlem can run circles around Kobe Bryant.
Okay, I went too far.
The only issue here is whether on the whole it is more likely that a return prepared by an unlicensed preparer contains more errors than one prepared by a licensed one.
Tax Returns Prepared and Signed by Non-Licensed Preparers are Not Flagged by the IRS and I Never Said They Were
What I tried to show and obviously failed was that the IRS must make assumptions in order to select tax returns for audit. There are simply too many tax returns filed every year for IRS personnel to peruse much less audit them all. Consequently, it must make assumptions about those returns based on statistical data and trends analysis.
After a DIF score is assigned to a tax return the return is sent to a regional IRS examiner and he or she quickly (they are assigned hundreds) scans the return looking for “red flags.” In my orginal post I simply listed and briefly discussed the 5 red flag items IRS examiners are most likely to look for in determining which returns the IRS will audit and which it will not.
It seems Robert is confused. He clearly thinks that I am saying that it is an audit red flag when a tax return is signed by a non-licensed preparer. I am not and I have not. What I did say is that if a tax return is to contain one or more red flags, it is probably a good idea to have a CPA (perhaps I should have said “tax CPA”), tax lawyer or IRS Enrolled Agent look at the return and sign off as preparer.
I believe this is good advice not because I happen to be a CPA and a tax attorney, but because I believe that in a close case the fact that a return was signed by a licensed professional – one whom is more likely to carry malpractice insurance, more likely to keep current with changing tax laws and more likely to be subject to sanctions by a non-IRS regulatory body - may dissuade the examiner from selecting the return for audit.
I repeat, “in a close case.”
Concluding Comments
I agree with Robert that it looks like he and I will have to agree to disagree, but please indulge me while I make one last point.
It is often the case that the value of a particular credential is exaggerated by the person who possesses it and minimized by the person who does not. It is probably as much a part of human nature for me to overvalue my CPA and law licenses as it is for Robert to undervalue them and overvalue his substantial hands-on experience. But we are not talking about Robert and I, but rather the mass of tax preparers who every year prepare and sign millions of tax returns for U.S. taxpayers.
Consider this hypothetical:
If you reached your hand in a crater that held all of the tax returns filed in any given tax year and yanked out just one of those returns, the accuracy of which your life depended on, would you hope to come out with a return that had been prepared by a non-licensed tax preparer or a return that had been prepared by a CPA, tax lawyer or IRS Enrolled Agent?
5 responses so far ↓
1 Robert D Flach // Jun 30, 2009 at 2:23 pm
Pete-
I would bet my life on a return prepared by an EA first, an unenrolled preparer 2nd, and a CPA third. I have rarely, if ever, come across a tax return prepared by a lawyer.
I feel I must repeat one of my points – a CPA is NOT a licensed tax preparer, as an EA is. A CPA is a licensed accountant – who is authorized by law and regulation to certify an audit of financial statements and nothing else.
When I worked at the big eight CPA firm many, many, many years ago several of the CPAs in my department (Small Business) came to me, a college drop-out who was self-taught in the subject, for tax advice and information. I was the department’s resident tax expert! And in reviewing prior year returns prepared by CPAs in the firm I found several drastic errors.
If there was a “Licensed Tax Practitioner” designation, as we have both discussed in length and support, then I would certainly bet my life on such a licensed tax preparer over an un-licensed tax preparer.
A lawyer by virtue of his JD degree is not necessarily a tax expert. A tax lawyer is a tax expert by virtue of his education and experience.
I have prepared tax returns for a few lawyers in the past who had no more tax knowledge than an engineer or an architect. They had expertise in their specific field of practice – in one case a labor lawyer.
I will go to my grave stating with certainty that the initials CPA do not in themselves connotate a tax expert. Many CPAs are tax experts because they have chosen to specialize in taxes. And many CPAs who choose to specialize in taxes do so in corporate taxes and are not 1040 experts.
You are a tax expert not by virtue of having passed the CPA and the bar exams. You are a tax expert because you chose to specialize in that area of law and accounting and have educated yourself accordingly.
I would not go to a urologist to have a brain tumor removed simply because the urologist had the initials “MD” after his name (no jokes now).
As I have said before, and as I recently found has been said my several other tax professionals in a message board, in 37 years I have found more errors on tax returns prepared by CPAs than by any other category of tax preparer – including Henry and Richard and self-prepared returns!
TWTP
2 Peter // Jun 30, 2009 at 6:05 pm
You said,
Frankly, I don’t believe you actually believe this. Or maybe you’ve deluded yourself that it’s true simply because you lack the credentials others possess.
By the way, have you ever heard of the terms “tax CPA” and “tax lawyer?”
My God, man, 37 years in the practice and you aren’t aware that a great number of CPAs and lawyers specialize in taxation?
Robert, for all anyone knows you have royally screwed up every tax return you ever prepared.
You may have missed valuable deductions that would have saved the taxpayer money or you may have failed to devise proper year tax planning strategies that might have saved your clients additional taxes.
We only have your word for it that you are a maestro of tax preparation.
I’m afraid that’s not enough.
The fact that you’ve done it for 37 years doesn’t mean you’ve done it right.
Finally, I agree with you that the letters CPA do not prove that a person is a tax expert.
But they certainly prove it more than do the letters _ _ _.
3 Monica Lawver // Jun 30, 2009 at 9:22 pm
My comment is a wee bit long, so it got its own post…
http://thetaxcpa.blogspot.com/2009/06/when-tax-preparers-attack.html
4 Peter // Jul 1, 2009 at 10:58 am
Monica,
I read your post but for some reason it wouldn’t let me comment.
You might want to check that out.
5 The Tax Guy Agrees with Robert Flach: The Pompous Ass (that’s me, folks) Responds // Jul 6, 2009 at 12:41 pm
[...] 30, 2008 – 2:23 PM – Comment – Wandering Tax Pro Responds, Pappas Dons Flach Jacket – Robert Says that
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