If this doesn’t conclude my little tete-a-tete with Monsieur Flach, nothing will.
Here is a synopsis of a study that was done in March of 2003.
Title: Tax Practitioner Credentials and the Incidence of IRS Audit Adjustments
Publication: Accounting Horizons
Authors: Hite, Petty A.; Hasseldine, John
Copyright: 2003 American Accounting Association
SYNOPSIS: This study analyzes a random selection of Internal Revenue Service (IRS) office audits from October 1997 to July 1998, the type of audit that concerns most taxpayers.
Taxpayers engage paid preparers in order to avoid this type of audit and to avoid any resulting tax adjustments.
The study examines whether there are more audit adjustments and penalty assessments on tax returns with paid-preparer assistance than on tax returns without paid-preparer assistance. By comparing the frequency of adjustments on IRS office audits, the study finds that there are significantly fewer tax adjustments on paid-preparer returns than on self-prepared returns.
Moreover, CPA-prepared returns resulted in fewer audit adjustments than non CPA-prepared returns. (Emphasis Added)
This study takes into account the fact that paid-preparer returns, especially CPA prepared returns, “are generally more complex, include more sole proprietorship data, and have higher levels of income. Additional income and complexity are associated with higher audit rates and larger tax adjustments.”
I expect Robert will claim that because this study was done by CPAs, it is biased and unreliable.
Oh, well.
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13 responses so far ↓
1 Bruce // Jul 1, 2009 at 3:54 am
I don’t and won’t presume to speak for TWTP (Robert) but if I may,
I’ll not question or accuse bias because the study was done by CPA’s.
I question the tax payers knowledge to understand and know a CPA from a “tax professional”. Yes there are CPAs that are tax pros and yada yada yada. Yes we know all that, and I commend those CPAs for getting into taxation, and preparation.
My concern, Those returns (the tax payers on those returns) who were completed mostly by CPA’s, Do they know the difference in a CPA and a Tax Professional?
If I was to guess, and guessing high I am, I would say of those CPA prepared returns, those taxpayers who could probably tell someone the difference between the two is 1/5 of the taxpayers.
Meaning as I seem to be rambling, of all those returns in the study 20% of them might be able to explain the difference in a CPA and a tax professional.
I myself have been in a large accounting firm (at the time, this country’s largest, and the fifth largest in the world) and know for a fact who is preparing returns, who is reviewing them and who is going over the final return with the tax payer. Of all the people who touched a return only one was a CPA, and only three of the partners there knew much about taxes. The others relied on the preparers and the reviewers 100%.
The taxpayer sees the CPAs name on it and assumes he/she has done the work.
Wake up America.
2 Peter // Jul 1, 2009 at 5:05 am
Bruce,
Let me get this straight.
The authors of the study, Hite and Hasseldine, were hoodwinked?
The CPAs who seemed to have done the returns in the study (by virtue of their signature being present on those returns ) were actually non-CPAs and Robert is correct after all?
In other words, since CPAs are actually having the returns prepared by their un-enrolled preparer staff (who says they’re unenrolled?), the study just thinks it’s concluding that CPAs do better than non-CPAs.
And only a naive and gullible person would not know that in reality the exact reverse is true – it’s actually the unenrolled preparers whose returns result in fewer audit adjustments and not the CPAs -and it’s all being covered up by . . . you guessed it.
CPAs.
(Apparently CPA stands for “Covert Preparer Alliance.”)
Does this one come before or after Roswell in the top ten Conspiracies list?
3 Taxpayer Advocate Scolds Unenrolled Preparers, Favors Regulation // Jul 1, 2009 at 8:08 am
[...] Study Finds that CPA Prepared Returns Result in Fewer Audit Adjustments than Returns Prepared by Non… [...]
4 Monica Lawver // Jul 1, 2009 at 9:07 am
As Bruce said, most taxpayers believe the initials CPA are equivalent with “tax expert.” All of us tax bloggers know this is not the case, but we also (I think) agree that some/many CPAs are tax experts.
So what do we do? A few options I see are…
(1) Change the CPA license requirements to more closely resemble the public’s perception. (not going to happen)
(2) Spend a fortune educating the public that “CPA” does not by itself mean tax expert (but that some/many CPAs are tax experts)
(3) Include CPAs in the IRS regulation of taxpayers (which is seeming more likely after Nina Olson’s report this week), where the CPAs must provide evidence of tax CPE
(4) Leave the system as is (to the frustration of many educated individuals like Bruce and Robert)
What do you guys think? Does one of these options make sense, or is there a better option my feeble brain has not considered? How does the profession best resolve this issue, or do we just resolve not to resolve it?
5 Peter // Jul 1, 2009 at 10:48 am
Monica,
CPA’s should be able to specialize in taxation if they agree not to perform audits or reviews.
In Florida, that would mean I’d be able to shift 16 CPE hours to tax subjects.
There should be a CPA-Tax and a CPA-Audit designation if the CPA so chooses.
I don’t think the problem is CPA preparers, its unenrolled preparers.
That is precisely what the Hite/Hasseldine study reveals AND what Nina Olson has found.
6 Bruce // Jul 1, 2009 at 12:13 pm
CPA stands for “Covert Preparer Alliance.”
I found great humor in the above. CPA definition. I needed a laugh, thank you.
Having held that designation however, I know otherwise.
And no I am not suggesting that the study was duped, I am suggesting that those with higher incomes and above higher adjustments are of the mindset that the designation CPA is as Monica stated, people are of the belief they are tax experts.
A solution to this would be simple but unfortunately costly.
My idea would be:
Attempt to educate the general public. Some news stories, some well-placed well-written ads defining what a CPA is and what a tax professional is.
The biggest problem with this is there is no tax preparer licensing. (Not to mention, the cost would be enormous.)
Sadly as Monica points out in her post the AICPA has no tax designation “CPAs specializing in tax find ourselves in a bit of a quandary. CPA designation does not by itself qualify as tax experts, but there is not another designation available that does.”
There needs to be.
As for placement on the Roswell top ten Conspiracies list, this would fall way after the top ten, as there is no conspiracy, only miss-conception.
To that end, I would like to hear from IRS Commissioner Doug Shulman, in when so stating the reasons behind Tax preparer regulation, with all the other phooey he proclaims it will help, to add, something to the effect that it will also put an end to the illusion that “ALL” CPAs are tax experts.
7 Jr Deputy Accountant // Jul 1, 2009 at 1:52 pm
Interesting article.
Bruce said: “Attempt to educate the general public. Some news stories, some well-placed well-written ads defining what a CPA is and what a tax professional is.
The biggest problem with this is there is no tax preparer licensing. (Not to mention, the cost would be enormous.)”
and he is absolutely right. However who do you think should be charged with this responsibility? Are the AICPA, NASBA, and individual state societies not doing enough to inform the general public as to the duties, responsibilities and training of CPAs?
I think the industry should accept that it has taken certain missteps along the way and repair that before it goes evangelizing some kind of PR campaign tooting the CPA horn.
However when you consider that the competition (“tax professionals” paid $7 an hour to work at HR Block) is out there gobbling up commercial time to get a piece of business, I suppose a strategy to counter this might be a good idea.
At the end of the day, it is the CPA him or herself who can have the largest impact on the public’s perception of CPAs as a greater group.
And as we all know, the public doesn’t always get it right.
8 The Tax Guy Agrees with Robert Flach: The Pompous Ass (that’s me, folks) Responds // Jul 6, 2009 at 12:22 am
[...] The fact that CPAs are imperfect does not and cannot confer on unenrolled preparers a higher status. Especially when study after study indicates that non-CPAs are even less perfect. [...]
9 Monica Lawver // Jul 6, 2009 at 4:58 pm
I like your suggestion: “There should be a CPA-Tax and a CPA-Audit designation if the CPA so chooses.”
I want my tax designation in addition to my CPA designation, gosh darn it!
10 Peter // Jul 6, 2009 at 10:33 pm
Monica,
Thank you.
I don’t really understand why regulatory boards don’t consider this. Perhaps it would create a bureacratic nightmare.
11 Snow Cone Operator Turned Unenrolled Tax Preparer Gets Iced // Jul 14, 2009 at 9:44 pm
[...] the recent continuing discussion about the regulation of unenrolled tax return preparers and the relative qualifications of unenrolled preparers, I thought it would be a good time to revisit the criminal case of an unenrolled tax preparer named [...]
12 IRS Tax Preparer Regulation Recommendations // Jan 5, 2010 at 4:23 pm
[...] Study Finds that CPA Prepared Returns Result in Fewer Errors than Returns Prepared by Non-CPAs [...]
13 CPAs vs. Unenrolled, Unlicensed, Unaccountible Tax Preparers // Jan 19, 2011 at 11:05 am
[...] Study Finds that CPA Prepared Returns Result in Fewer Audit Adjustments than Returns Prepared by Non… [...]
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