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Today's paper wrote an article about tax cheats in Italy, men who drive Ferrari's that pay no tax, and the lost of 53 billion a year. I think we lost that much just on the EIC, first time home buyers credit, and "under the table" wages paid out. While I'm aware the entire tax system is based on people's honesty to report their income, it's mostly only the W2 wage that has strict control, with costly penalties for employers that are so much as one day late in their daily, monthly or quarterly payments. How can IRS prove how much rent a landlord received? How can IRS prove some one didn't inherit stock? Who's going to challenge the self employed, who slip money into their pocket and by pass the register? The list is long, the audits few. While I'm betting the vast majority of us are honest, IRS still reports billions of dollars in fraud every year. There is NO paper trail on some incomes, and keeping log books on business income is also based on honesty. If one has a business and doesn't log mileage, or keep receipts, they are not suppose to take it, right? Not taking the deduction may get higher EIC, so is it dishonest to be a bad bookkeeper due to ignorance? What will IRS do at an audit, when a taxpayer says he's lost all his receipts, and was scared to write them off since he had no proof?
Preparers are starting to get letters from IRS, about due diligence on EIC. While IRS is saying we can't ask for birth certificates, they know they have a major problem with nieces and nephew who are NOT blood relative, and we are expected to ask more questions when the child's last name doesn't match the taxpayer. WELL, that's so common today with the divorce or never married folks, grilling the crap out of them, won't work, when they're highly aware of how to answer!
Have we created a tax system of such unfairness, we reward cheaters, and punish the honest guy who has to pay the cheater's share? I may not have seen any Ferrari's, but I have written a lot of tax returns for people who own real expensive SUV's and 40K pick up trucks, who end up paying very little in tax, or NONE at all.
Which leads me to answering Patrick's post. Will some tax services find a way to cheat and have one registered pro sign a return, while another does the work? I'm thinking, "how is IRS going to prove it happened?" The rules are for the honest, and NOT all people are when it comes to money. While we are trained for honesty, and have pride in our work, there are those who will find "loopholes" even if they have to invent them!
"Will some tax services find a way to cheat and have one registered pro sign a return, while another does the work?"
doontoothers, this situation is certainly conceivable, but now that the IRS is paying attention to registered pros (and sending out letters or making visits to those who screw up too often), I believe the likelihood of your scenario is low. If anything, registration should make tax preparers finally start to think of themselves as PROFESSIONALS with reputations to protect. I don't think too many will sign a return they themselves did not prepare because they had to jump through hoops to earn their RTRP designation and won't want to jeopardize it.
As an example, I offer the case of NY, which requires tax preparers who are not CPAs, EAs, or attorneys to register with the state and pay $100 for the privilege. The fee has nothing to do with demonstrating competency (as in CA and OR), but is just a way for the state to collect money from out-of-state preparers who submit NY returns. Where I work not all of us are CPAs or EAs, so those without these designations have been preparing NY returns under our names. That's fine with me, because everyone there is very knowledgeable and competent. Yet when my name gets put on a return, I feel obligated to go over every detail and scrap of paper. I worked too hard to become an EA to let some silly mistake put my license at risk.
When I worked at Block, it seemed that quite a few of those in my classes never thought of themselves as professionals. Part of the fault was with Block management, which did not treat us as professionals (imposing rules more appropriate for high school students, playing games with pay structure they thought we wouldn't catch onto, rewarding product sales more than accurate tax prep, etc.). Part of the problem, though, was with workers who thought this was just a seasonal job like any other. I've written numerous posts about the lawsuits and complaints over the company requiring continuing ed without paying for the time. Some have even complained that they weren't paid to take Basic! Employees like this do not see themselves as professionals and probably don't act like it either. The majority of those who have earned their credentials with the IRS won't want to lend these people their names.
Wishful, were you at Block the year they hired temporary workers who were NOT allowed to sign a return? I wasn't, but I know a lot of ex-coworkers who were giddy about making the bonus off those returns, by only having to sign it! They figured it was Block's problem if the return was done wrong, and these were the same folks that would research all night to make sure their own returns were correct. Money can be a tempting factor.
Today's newspaper: "Teachers embroiled in test-taking fraud".
For 15 years teachers paid Clarence Mumford (a long time educator) to send someone else to take the test in their name. $1,500-3,000, with fake ID.
Story goes on, but it's enough said.
You clearly have not encoutered the kind of nefarious operators my business seems surrounded by. We turn them in to the IRS when we discover their practices, but who knows what the IRS does with that. You know, the "Instant Tax Service" types...
Who do you think has the bigger incentive to cheat on taxes, the poor person who can get a few thousand or the rich person who can dodge paying millions? If not tens or hundreds of millions.