The Tax Preparer and Regulation

Considering it is tax season I thought it appropiate to make mention of a virus that threatens our society. The "Unregulated Tax Preparer" or UTP. Every now and again but mainly during tax season I come accross a new client who has had their return prepared by Mr. or Ms. UTP. Yes you all know who they are. They hang out that yellow or red flag in notable establishments like check cashing stores, corner grocery stores or Bodega's and proclaim the words "Income Tax". Its hard to tell what they do but some how that sign has come to be understood as a place to get your return done.

They are in every city across america. Before I speak freely there are some who actually know what they are doing. Some are Enrolled Agents of the IRS and do a fare job for the simple individual income tax returns. Others are degreed accountants who have a good understanding of accounting and tax law. Some may actually be Certified Public Accountants. However, beware! Many are nothing short of Charleton's. I have coined the phrase UTP as "Used Toilet Paper" people. It would seem that the majority of these establishments prepare nothing but "Used Toilet Paper!" The give the profession a bad name and need to be outlawed.

Firstly, here is a bit of advice. Get a professional to do your return. Well known franchises like Jackson Hewitt or H&R Block are a good start. These people get good training however, many are seasonal employees who really do not have experience or who are not well versed in complicated matters. Worse yet many times you might be hard pressed to establish a relationship with these preparers. They sometimes come and go with the season. There is a lot to be said about establishing a relationship with your tax preparer, tax advisor and accountant. It's like feeling comfortable with your doctor or lawyer. You could find an "Ennrolled Agent". This is a designation given to individuals that have taken courses to learn about tax laws have passed and exam and passed a level of standard with the IRS. Again same issues as above but still better than just anyone. Wether you choose a franchise or and enrolled agent they should be professional enough to tell you what they can or can't do. You could go to a "Tax Attorney". These are obviously skilled professionals with lots of knowledge. They are lawyers who understand tax law. Being lawyers they can represent you before the IRS. In fact CPA's often use tax attorney's to create Trusts, Wills, Pension and 401K plans, for tax research and tax opinions, legal representation in criminal cases, to name a few services, because you need to be licensed to practice law, (for the most part) in order to prepare or perform many of these services. Tax Attorney's are licensed and know the law. However, many are not accountants. They don't know or only have a vague idea how to maintain a set of books. They do not understand systems and controls for businesses. Many are true lawyers and are tax guru's but they don't and will not prepare a tax return. Thay are are financial analysts and some are plain horrible at numbers. In fact a good tax attorney has a good relationship with a good CPA or accountant. One does the law the other does the numbers, audits, return preparation etc. The other alternative is to hire a "Certified Public Accountant" (CPA). CPA's take a uniform CPA exam. The exam is composed of various parts but generally cover, accounting, auditing, business law, taxation and economics. Once that exam is passed they request licensing under state law. Once they are certified the IRS recognizes them as competent in the laws of taxation and capable of representing taxpayers before the IRS. CPA's often prepare income taxes and do so very competently. Contrary to the belief of many taxation may have nothing to do with accounting. The operative word is "may". This is because tax law is made by well "law" and although much of tax law has its basis in some accounting or financial model those individuals who govern have a job to enact laws that frankly, may have no economic purposes other than to raise a buck for uncle sam. (entirely a different issue). CPA's are good with numbers, understand finance, many hold other designations such as Certified Financial Planner(CFP), Certified Insurance Underwriter (CLU), Certified Management Accountants (CMA) and so forth. They know tax law and the interrelationships that exist. Better yet is that they know business and thats very good because even if you do not own one, you probably work for one, and besides your household is a business. It has income, expenses assets and liabilities. In fact you may need to see a CPA if your not thinking about your household as a business.

Anything short of these professionals and you are looking for trouble. Unfortunately, this industry is unregulated. There is nothing to keep these unskilled, UTP's from practicing. In the end they hurt all of us. Some operate under the guise that they know how you don't have to pay income tax. They'll go so far as to operate outside the law and snare you in the process. This is criminal activity and should not be taken lightly. Moreover, they raise the income tax burden on those of us who abide by the law. Many times these individuals are elusive but you as a taxpayer who signs that return may unknowingly be signing lies that can get you into a lot of hot water sometime down the road. The latest gimic are advances againts your refund. By itself not a bad thing as many people really need this money right away. But you are paying a very high rate for that money upfront. Many simply do it for you and unfortunetly the consumer is unaware of what it has cost them to receive that money fast.

I have heard and personally experienced tax tragedies by these UTP's that have had clients crying and shaking in my office when they have come to realize what poor service they have received. Some have faced criminal actions by the IRS and other taxing authorities. Some clients have had business credit denied, bonding capacity revoked, lines of credit taken away. Businesses and individuals have faced steep interest, penalties and back taxes in order to correct their standing with tax authorities. Not to mention the cost of expensive professional help to straighten out the mess. Most tax professionals will tell you no matter how much you think you might save in the shortrun tax cheats and those unfortuante individuals who have received poor advice and tax services pay triple if they are caught.

As a CPA I think we need to have better regulation of tax preparation. Too many tax dollars are lost. Too much of the tax burden is carried by those who are honest. The profession of Income Tax Prepration is severely hurt and tarnished by these Charleton's and in the end many honest and hardworking consumers are hurt in the process. Given the sheer number of UTP's it's my guess that lost tax revenue adds up to numbers that create a whole underground economy and collectively add up to the likes of Enron or Worldcom scandals.

It seems to me this is a no brainer.