This afternoon I picked up an e-mail that had a copy of IRS Commissioner Shulman remarks at the AICPA fall meeting today (11/8/11). A good part of the speech covered the tax return preparer licensing. There was nothing much new in his remarks on this topic. Nothing that a CPA attending the meeting wouldn’t already know. I had just come from reading a tax forum where a collogue was complaining about a regional car dealership that was already advertising about bringing in pay stubs to figure the customer’s refund as a down payment on a car. Since no return can be filed for a couple more months, I assume the dealer is just getting an idea of the potential refund for a loan. But I know that many non-tax businesses have prepared and/or filed tax returns for clients and I wonder if Commissioner Shulman is talking to the wrong groups. Maybe his time would be better served talking at car dealership and pawn shop meetings instead of CPA meetings.
While I’m sure that Commission Shulman (or any IRS representative) would be much more diplomatic, here’s what I would say:
In January of 2010, the IRS released the details of a paid preparer licensing program. These new rules require that anyone preparing returns include with their signature in the Paid Preparer Section a Preparer Tax Identification Number (PTIN). This year the IRS is adding mandatory minimum competency testing and 15 hours of CPE will begin in 2012. By 2013, all paid tax return preparers will be tested, have a PTIN, do continuing education and be covered under the revised Circular 230 rules of professional behavior (actually in force now). Those rules apply to anyone preparing returns for a financial benefit. It doesn’t matter if it’s a one person shop, a national chain, huge CPA firm or a car dealership, pawn shop or other non-tax business.
Now, before you start going on about providing a free service –stop. We all know that you’re not. You are offering tax return preparation to get people to buy something or to rake in the fees advancing them a part of their refund. That means you are being paid. So whoever you have preparing returns, needs to meet these requirements. If they don’t, don’t hire them. By the way, calling an employee “independent contractor” when they aren’t, isn’t a good idea. If your “contractor” gets ruled to be an “employee”, you end up with whole another set of problems.
So let’s talk about some of the new rules. Actually, they’re not really “new” rules. They’re the same rules most of you ignored and played the “the IRS will never know” game. You know, things like filing with paystubs, filing a married couple as two Head of Households, not disclosing all the terms of the loans, not keeping required paperwork, holding the taxpayer’s original documents hostage if they tried to change their mind, not signing the return (all bad). Oh, now you remember, that stuff. You now have to follow the same rules as any other RTRP, EA or CPA. And that means the same penalties for not following the rules. Before you play the “it’s the employee’s fault” card, remember you hired that employee and as far as the taxpayer is concerned your company is who prepared the return. The IRS is very good at identifying all the people who should be held responsible. Think payroll deposits.
It may be tempting to treat all those returns as “self-prepared” returns even if your representative actually prepared them. Don’t even think about it. First, as the ERO filing the return, you need to keep a copy of the return the taxpayer brings in to file. Not a printed copy from your software but an exact copy of what they brought in and you e-filed. Next, the IRS is contacting taxpayers who file returns marked as self-prepared to make sure they really did prepare the return themselves. If they didn’t, the taxpayer will learn that the preparer section needs to be filed out correctly by whoever does prepare the return. And remember that it only takes audited return to tip the IRS off to your operation. Then they start looking at everything.
Since e-filing became cool, you and your buddies have had it good; you got by with not following the rules that the honest preparers had to follow. You took advantage of tax software and taxpayers to increase your bottom line. You counted on blaming the “employee” who did the return when a customer had a tax problem with a return you profited from. In her 2002 report to Congress, Nina Olson, Taxpayer Advocate, used a young couple who needed a car and took their return into a car dealership as an example why we needed preparer licensing. It’s here now and I bet it’s going to hurt you more than me. Oh, you “tax season only” tax offices; the rules apply to you also.
That’s what I would say.