Joe Kristan has a blog post today titled Those Unlicensed Tax Preparers are Just Unaccountible! in which he reports the convictions and sentencing of two unlicensed tax preparers for tax fraud.
Joe offers these cases as evidence that a regulatory system for unlicensed tax preparers would be superfluous:
Somehow it seems unlikely that having an IRS-imposed continuing education requirement would have saved these folks from crossing to the dark side. In fact, in the second case, it clearly didn’t. And the sanctions they face are much worse than anything an IRS preparer regulatory board is likely to dish out.
Joe is right in pointing out that criminal sanctions are imposed on tax preparers who commit outright tax fraud, but he is wrong in assuming that the purpose of a regulatory regime is to punish law breakers after the fact.
The purpose of tax preparer regulation is to create barriers to entry for would be unscrupulous or incompetent preparers. Right now we have none.
Even an illiterate, ex-con, schizophrenic Yankee fan could, if he so chose, decide to hang out his shingle as a tax preparer.
A regulatory scheme is not designed to punish criminal actors, but rather to reduce the simple negligence and incompetence that does not rise to the level of sanctionable criminal conduct.
Criminal sanctions are not part of the regulatory regimes now in place for CPAs, lawyers or Enrolled Agents. Only states and the federal government are permitted to charge fraudulent tax preparers with crimes.
CPAs, lawyers and Enrolled Agents are subject to the same criminal sanctions as are unlicensed preparers.
When we talk about the regulation of unlicensed tax preparers we are talking about imposing on them additional mechanisms of regulation (on top of already existing state-imposed criminal sanctions) that are more in line with the regulatory schemes CPAs, lawyers and EAs must adhere to.
Related Posts:
- Tax Fraud Update: Former Snow Cone Preparer Gets Iced
- Unenrolled Preparers Not so Good, TIGTA Study Reveals
- Study Finds that CPA Prepared Returns Result in Fewer Audit Adjustments than Returns Prepared by Non-CPAs
- IRS to License and Regulate Tax Preparers
1 response so far ↓
1 Mary // Aug 13, 2009 at 11:49 am
The practical reality, however, is that most unenrolled preparers already DO, in theory, face some IRS regulation and barriers.
These days almost all unenrolled preparers want to be able to e-file returns, which means that the principals in the business are required to apply to the IRS to become EROs (Electronic Return Originators.) This requires registration, criminal and credit record checks, and a tax compliance check.
In theory, the IRS has a powerful tool to quickly shut down a renegade ERO by yanking their electronic filing capability.
But in practice, they just find a way to e-file under someone else’s ERO.
With paper filing, it’s even easier for renegade preparers to assume the identity of a legitimate preparer. Just copy down the relevant preparer information from a copy of a client’s prior year return prepared by the legit preparer. Identity theft of legitimate preparer information is a real issue.
It takes years for the IRS to catch up with egregious violators.
The IRS will need some serious money and staff to really put teeth into any licensing project. At the moment, their 20-plus preparer databases are so confused and tangled up that they can’t keep proper track of the preparers they already oversee via the ERO mechanism.
I’ve collected some information on the IRS enforcement problems and some real horror stories here:
http://bedbuffalos.blogspot.com/search/label/tax%20preparers
The devil is in the details: the IRS needs a practical and effective way to enforce any licensing requirements it imposes.
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