Accounting Today ran a story today about a new bill that increases tax preparer penalties for defrauding taxpayers and the IRS. The Fighting Tax Fraud Act of 2012 (H.R. 5630.IH) has been introduced in the House Ways and Means Committee. It would increase the preparer penalties for fraudulent conduct to the greater of $5000 or the amount of understated liability. This is on top of any other penalties the preparer is hit with. What is fraudulent conduct? From the bill:
FRAUDULENT CONDUCT- Conduct is described in this paragraph if such conduct consists of--
` (A) a willful modification of any return or claim for refund which--
`(i) creates an understatement of liability, and
`(ii) is made by the tax return preparer after such return or claim has been signed by the taxpayer, and
`(B) a willful attempt by the tax return preparer to receive the proceeds of a refund any portion of which is attributable to such understatement of liability.'
A good start but…
The penalties are based on the preparer changing the return after the taxpayer signs it. But what about the preparer who files a return without the taxpayer’s signature or knowledge? I’m thinking about the stories that came out in the Instant Tax Service court documents. Many taxpayers went in to get a loan and later learned that their return had been filed without their knowledge.
Say Jane comes in and I prepare a return for her. She signs the return or Form 8879 and leaves expecting to get back $750 dollars. Then I change the return so the refund is $1750 and I have the refund come to me not Jane. Once the money comes in, I call Jane to come pick up her refund of $750 and I pocket the rest. Under the proposed law, I could be hit with the higher penalties. But if I don’t have Jane sign anything, I could argue against any of these proposed penalties being applied to me because Jane didn’t sign the return. The new bill is very specific about the signing. Maybe a line about filing a return based on the taxpayer’s info without the taxpayer’s permission to file the return will solve that problem.
I also hope that the bill’s sponsors understand that the extra penalties of this bill won’t apply to a pure identity theft case where the returns are based on made up income and deductions and the real taxpayer doesn’t sign anything.
I understand the concept behind H.R. 5630.IH but it needs some tweaking to resolve the issues it’s tackling.