Prep talks

Tax pro­fes­sion­als share how they han­dle client con­cerns about pre­parer fraud

Accounting Today - - Taxpractice - By Jeff Stimpson See PREP on 17

More than half of U.S. tax­pay­ers use a paid pre­parer ac­cord­ing to the In­ter­nal Rev­enue Ser­vice — the same agency that year af­ter year ranks pre­parer fraud high on its an­nual list of head­line tax crimes. What to tell jit­tery clients?

“In Con­necti­cut, we’ve had some ar­rests of fraud­u­lent pre­par­ers and clients bring that up in pass­ing. In the past 18 years, no one has ever ques­tioned my stand­ing but they of­ten won­der why and how peo­ple do it,” said Mor­ris Arm­strong, an En­rolled Agent and reg­is­tered in­vest­ment ad­vi­sor with Arm­strong Fi­nan­cial Strate­gies, in Cheshire, Con­necti­cut. “Signs that I tell them may be a trig­ger are very high re­funds, very high fees, and of course their telling you what you should deduct.”

“Many clients share sto­ries about friends and rel­a­tives get­ting screwed by tax pro­fes­sion­als, both li­censed and un­li­censed alike. I re­as­sure clients by invit­ing them into my house, show­ing them how I live and that I chose to use my tax knowl­edge pro­tect­ing oth­ers,” said John Dun­don, an EA and pres­i­dent of Tax­payer Ad­vo­cacy Ser­vices in En­gle­wood, Colorado.

“Over the years, I’ve had new clients come to me, and when I com­pare the cur­rent year with the prior year there are ma­jor dif­fer­ences, es­pe­cially with Sched­ule A de­duc­tions,” said pre­parer An­drew Pier­nock at Pier­nock Ac­count­ing and Tax Ser­vices in Philadel­phia. “I ex­plain to the new client that the prior year has ma­jor is­sues and in the event of an au­dit they should have the backup to sup­port those de­duc­tions. I re­as­sure them that I do ev­ery­thing by the book and I am not putting their re­turn and my busi­ness and rep­u­ta­tion in jeop­ardy.”

Some­one else’s mess

Pre­par­ers re­port that a some­times-small but grow­ing num­ber of clients ex­press con­cern, and that new pre­par­ers must of­ten first clean up messes be­fore re­as­sur­ing tax­pay­ers.

“The tax­payer pays them a high prepa­ra­tion fee, gets a big re­fund, but of­ten has to pay it back with in­ter­est and penal­ties. I’ve found these crooked pre­par­ers of­ten prey on low-in­come and mi­nor­ity pop­u­la­tions,” said Pa­trick O’hara, an EA with the Tax Al­ter­na­tive Group in Pough­keep­sie, N.Y. “It’s un­for­tu­nate that tax­pay­ers seem to have more con­fi­dence in the un­scrupu­lous pre­parer who prom­ises big re­funds than the li­censed pro­fes­sional who says, ‘That’s not al­lowed …’”

“I had a rep­re­sen­ta­tion client come to me af­ter deal­ing with an abu­sive pre­parer. In fact, he went so far as to send out let­ters telling his clients that the IRS may come call­ing and he did noth­ing more than put what they told him on the re­turn,” re­called He­len O’plan­ick, an EA at HELJAN As­so­ciates in Manch­ester, Penn­syl­va­nia. “Well, mileage for com­mut­ing and ex­penses were not de­ductible — panty­hose and man­i­cures for a teacher? Did he tell them that? No.”

“I haven’t had much ex­pe­ri­ence with this is­sue in the past [but] dur­ing this past tax sea­son we took on a new client who never got their re­fund last year and their old pre­parer just isn’t be­ing straight­for­ward,” said Mar­i­lyn Heller Ay­ers, a CPA in Brick, N.J. “They’re an older cou­ple liv­ing on a fixed in­come and the re­fund was nearly $2,500.”

Is the blame al­ways en­tirely the for­mer pre­parer’s?

“While I feel sorry for the tax­pay­ers who have been im­pacted, I also sus­pect that in many cases that they’re com­plicit. You know that you only have two kids and that you don’t have a busi­ness — let alone a busi­ness that gen­er­ates a $20,000

No ‘co­or­di­nated strat­egy’

The Trea­sury In­spec­tor Gen­eral for Tax Ad­min­is­tra­tion re­cently re­ported that the IRS lacks a co­or­di­nated strat­egy to deal with un­reg­u­lated tax pre­par­ers.

The re­port pointed out that be­cause IRS ef­forts to reg­u­late pre­par­ers were in­val­i­dated by lit­i­ga­tion, pre­par­ers are gen­er­ally un­reg­u­lated and they can pre­pare re­turns with no for­mal train­ing or ed­u­ca­tion — not to men­tion ex­ten­sive ev­i­dence that some prey on in­no­cent tax­pay­ers.

“A few years ago a tax pre­parer fal­si­fied de­duc­tions and em­bez­zled funds of clients. We in­her­ited a few of her clients, so we had first­hand knowl­edge from prior re­turns,” said tax pre­parer Eric Hansen in Omaha, Ne­braska. “Her story was lo­cally pub­li­cized and the IRS was in­formed. The IRS did noth­ing. Hard to re­as­sure clients when the IRS amaz­ingly al­lows this pre­parer to con­tinue do­ing tax re­turns.”

The TIGTA re­port comes amid a fresh leg­isla­tive ef­fort to reg­u­late pre­par­ers: the bi­par­ti­san Pro­tect­ing Tax­pay­ers Act, which in­cludes a num­ber of re­forms to the IRS, in­clud­ing statu­tory author­ity to reg­u­late paid pre­par­ers “in a bal­anced way.”

Some pre­par­ers try to ed­u­cate clients. “I tell ev­ery­one ev­ery time and in­clude scam warn­ings in Face­book promo ma­te­rial and still some don’t get the mes­sage. But most are say­ing they know about it,” said Paul Knapp of Ex­act In­come Tax Ser­vice, in Santa Fe, N.M.

Kathryn Mor­gan, an EA at Puz­zled by Taxes in Haughton, Louisiana, clar­i­fies for clients the dif­fer­ence be­tween a tax pre­parer and a tax pro­fes­sional.

“Tax pre­parer: some­one who pre­pares an in­come tax re­turn for an­other,” she said. “Tax pro­fes­sional: a trained pro­fes­sional who main­tains con­tin­u­ous ed­u­ca­tion to up­date their knowl­edge and then uses that knowl­edge to as­sist a tax­payer in com­plet­ing a thor­ough and ac­cu­rate in­come tax re­turn re­sult­ing in the low­est le­gal tax li­a­bil­ity for the tax­payer.”

Kerry Free­man, an EA at Free­man

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