Take a Snapshot

First, let me say I am working on my iPad so as much as I would like to link to some other sites for this post, I can't right away. Hopefully, I can add them later.

There has been a lot of discussion lately on blogs and forums about whether the new tax preparer rules will actually work. Will they get rid of the "bad" preparers? I believe most will disappear but we won't notice a change. I think the change will be subtle as the program phases in. My suggestion is to take a mental snapshot of your local tax preparation scene as it was in January of this year. Who was in business? Who was listed in the phone book and who was only word of mouth? What kind of business were they operating? Were they offering bank products, operating out of a pawn shop or car dealership or were their clients the movers and shakers of your community? Then, give it a few years and take another snapshot and compare the "pictures". I think we'll find that the pawn shops and car dealerships will be almost gone. They are only in it for they money and they aren't going to want to pay to train and license someone. Also, the IRS has hinted at using IP addresses to track when too many returns are prepared on one copy of personal tax software so they'll have to spend more on software. The same will happen to all the "friends" who do returns because they took the VITA or HRB class years ago.

The next group will be those can't pass the exam or the screening for felonies or personal tax issues. The sad thing is that these aren't insurmountable. A little work and these problems could be solve but too many will give up. I think we'll see a lot of early retirements.

This leave the licensed preparers and the "under the table preparers". Since Congress's first attempt at preparer legislation, taxpayer education as been part of process. Letting them know what to expect any why there will be changes. I like Mary O'Keefe's suggestion of putting a picture of the preparer with the PTIN. One common concern I've seen in preparer forums this year is the concept of PTIN identity theft. A couple of months ago, I suggested on the Drake Software forum a little system that might cut some of this out. I'd like to see an option on my EFIN application where I can list the PTINs of the preparers who will be filing returns under my EFIN. And on my PTIN application (I'm assuming that we'll be given a way to update the information) a place that I can list which EROs I'll be filing through. Then when the return is e-filed, the IRS can check for non matches and kick them back out to be fixed. The same process as with SSNs and names on the return. If it's simple mistake, it can be easily fixed and if it is someone trying to file with someone else's return, they get called out and stopped.

Okay, that leave us with the hard core "bad" preparer. We'll always have some that won't work under the system. They get shut down and show up a few miles away. My concern with the "under the table" guys is the reasonably honest taxpayer who finds them and doesn't pay attention to what's going on with their return. We can stop these preparers from e-filing by licensing and checking PTINs and we can educate their clients and potential clients about the dangers of using them. But, we won't get rid of them because there will always be taxpayers who will use them. These taxpayers will ignore the education programs and common sense. They use that preparer because he/she will cheat to get the taxpayer what they want- a refund. Both sides of the desk are willing to lie and cheat. From what I've heard from preparers who went to the IRS forums, the IRS has a few ideas for both the preparer and the taxpayer who uses them.

The problem right now is there are many ideas floating about the whole process. To much is still up in the air, but I believe we're on the right track.  There is no one way to stop all the "bad" preparers (just as there will be less than competent preparers who will pass the test). We can get rid of most of them through licensing, testing, and education of taxpayers. But we can make it hard for the rest of them and limit their clients to those who want to cheat too. So take a snapshot and look at it in a couple of years, I expect to see a big change.