Tax-preparer ruling called ‘disastrous’
By LAUREN FRENCH | 2/6/13 4:58 AM EST
Welcome to the Wild West.
The tax version of it, at least.
That’s how Nina Olson, the IRS’s designated advocate for taxpayers, sees an unregulated world of tax preparers where anyone can throw up a sign and charge taxpayers to file returns — without ever having to prove they know what a Form 433-A is.
That’s why the recent decision by U.S. District Judge James Boasberg to stop the agency’s regulation program for some tax preparers, known as Loving v. IRS, is “disastrous,” the national taxpayer advocate told POLITICO on Monday.
“Because we don’t have regulation of return preparers yet, all bets are off right now. Anyone can hang up their shingle and be a return preparer,” she said. “We are seeing increasing levels of return preparer fraud … [and] the taxpayer is left working through the system.”
The program forced tax preparers — with the exception of attorneys, CPAs and enrolled preparers — to register with the IRS and pass a competency test to protect taxpayers from fraud by unscrupulous or uneducated preparers.
But in a surprise blow to the tax-collecting agency, Boasberg ruled on Jan. 18 that the IRS does not have the authority to regulate so-called unenrolled preparers, forcing the IRS to shut down its program. On Friday, he amended his decision to say the IRS could still administer the tests and continuing education but could not charge preparers for it — or force anyone to comply.
Olson disagrees with Boasberg. She first recommended, nearly 10 years ago, that the IRS impose regulations on tax preparers and said Boasberg’s decision came from a “f“ Underlying the decision was a fundamental misunderstanding that filing a tax return is somehow a … benign act — and it’s not,” Olson said. “It’s not just filling in blanks, it has legal import and I think failing to acknowledge that … enabled the judge to get to certain points.”
The IRS plans to appeal the ruling, but even if the agency wins — and Olson declined to speculate on the case’s chances — the decision will cause delay and confusion during this tax-filing season, she said.
Olson knows what it’s like to be an unenrolled preparer. She worked for nearly two decades helping low-income taxpayers navigate the complex labyrinth of the Tax Code and the immense bureaucracy of the IRS.
But the regulations, she said, were not designed to stop the good preparers from working. They were tools to help the agency reduce the estimated $450 billion gap between the taxes owed and those collected each year.
And a significant driver behind that tax gap is uneducated or unscrupulous tax preparers — those who try to cheat the system by claiming taxpayers’ refunds for themselves.
The Treasury Inspector General for Tax Administration, a watchdog agency, estimates that the IRS could issue $21 billion in potentially fraudulent returns in the next five years.
“The taxpaying public has a right to know that this particular return preparer has a minimum competency, not just that they could just buy a piece of software, but they have minimum competency to file one of the single most important documents a [taxpayer submits] to the federal government,” Olson said. “That is the least we, as a tax administration, as government, can give our tax-paying public.”
