THE DISCUSSION CONTINUES

In my post THE NATP ANNUAL YEAR-END TAX UPDATE I discussed two issues discussed at the seminar that were of special importance to tax professionals. 

At the end of the post, and in a “tweet”, I solicited comments from fellow tax pros.  Here is what you said in “tweets”, blog posts, and comments about the new EIC due diligence rules -

·      “I agree with you 100% Robert.”  Al‏@AlplouisEA

·      “Like with the preparer regulations, honest preparers are saddled with rules they don’t need in response to tax cheaters who will ignore the rules anyway.” 

From CPA Joe Kristan in his 11/30/2012 BUZZ-like “Tax Roundup” post at THE ROTH AND COMPANY TAX UPDATE BLOG.

While I support the concept registering tax return preparers and issuing the RTRP designation, I agree with Joe that one of the rules under the IRS tax return preparer regulation regime is not needed – the initial competency test requirement.

·      “Okay now for my soapbox….After many years of preparing tax returns, I have had a few fibbing taxpayers at my desk. Like the family of four that lived on less than $2000 for the year, or the business owner that had NO expenses for his business…etc., etc. While working at a retail chain store (resembling a sweatshop for EIC returns), there were many nail-biting moments and sleepless nights, because the Tax Professionals were told to just push it through. Thank God, I do not work there anymore and my clients now are loyal and trustworthy.

So now I have to get out my crabby social worker hat when the earned income credit taxpayers show up, Thank God I do not have that many, but the crabby social worker hat will be ready on standby.

On my Christmas list, I would like this credit to go away….I also would like a mini cooper but neither will be under the tree. Boo hoo.”

From Kim Kislak’s post “Credits and Soapbox Tax Dribble” at KISLAK’S TAX AND NOTARY SERVICE BL0G.

A disappointing response – I welcome additional comments and posts.  Let’s keep the discussion going.

There is without a doubt tons of fraud connected with the Earned Income Credit – about 30% of all claims are fraudulent. 

But what is the effect of the new excessive due diligence rules for tax preparers? 

Legitimate EIC filers are, by definition, low-income taxpayers who more often than not need the help of qualified, competent tax professionals.  The new rules will cause tax preparers to either increase fees charged to EIC claimants, perhaps substantially (and justifiably so), or, like me, refuse to prepare returns with EIC claims.  In either case it is the legitimate EIC claimant who will be hurt.

I expect that the bulk of aggressive EIC fraud comes from “self-prepared” returns and “ghost preparers”.  So the oppressive due diligence rules forced upon honest and competent preparers will make at most only a miniscule dent in the problem.

The problem is that refundable credits generate excessive tax fraud.  The solution is to do away with refundable credits.  It is as easy as that.

If we must be stuck with the Earned Income Credit, and the IRS is serious about making sure legitimate claimants get the benefit they deserve, the Service should expand its VITA free tax preparation service and provide special training to VITA volunteer preparers in the Earned Income Credit and the new due diligence requirements.  It could also provide VITA centers with some paid staff that would specialize in EIC returns.

In my previous post I mentioned the need for an “advocate” organization for all PTIN holders.  The latest IRS figures indicate that there are currently more than 730,000 PTIN-holders.  There would be strength in this number.  If the IRS was told that 700,000 paid preparers would refuse to prepare tax returns that included an EIC claim unless the new due diligence requirements were “fixed” do you think the IRS would change them?

RDF