Tax Nazi

[Bees Knees]

Definition: A fanatic who believes a tax preparer should act on behalf of the government instead of the client.

Years ago Lance Emerson brought up a subject on the other board on how we as tax practitioners should act in behalf of the client, not the government.

It is true that we have ethical issues to deal with. But we are paid to represent the client, not the government. It urks me when I see our industry follow lock step to the beat of doing the government’s job. We are not IRS agents, so why act like one?

Case in point is the following advice from the other board: “Advise him that he cannot deduct the cost of the equip on his return. If he barks, tell him to finnd another accountant.”

That sounds like an IRS agent I would love to get into an argument with. The law allows you to deduct legit business expenses, even if you have zero proof. Do I need to start quoting regs and court cases? Unfortunately, this person was passing himself or herself off as a tax practitioner, someone who is supposed to be on the side of the client.

Is this the level of poor client representation our industry is sinking into? What is your opinion?

[Lance Emerson]

I'm Awake

Gabriele posted this on another thread:

"Last week I attended a teleseminar with the IRS in regards to the new 230 regulations. A number of very concerned EA's and CPA's asked questions from the day to day scenario. They again and again were told that this is not what the IRS would pay close attention to.

"When asked what exactly is the concern of the IRS no answer was given. I got very upset to leave all the burden on us and no useful advise given. I hate this increading burden on all of us and go into more and more effort to protect ourselves."

Yes, we are de facto government agents.

Look at the penalty if a preparer does not investigate deep enough to verify whether a taxpayer is eligible for the earned income credit. The taxpayer lies, the preparer is penalized. Not because of wrongdoing, because of not going far enough to uncover fraud. That's enforcement, folks.

I get irked when I hear other preparers who I otherwise respect and admire say things like "No, you can't take that deduction. An auditor wouldn't like it."

These are the same people who think it's a good thing that they almost never see an audit of a client's return.

The new Circular 230 rules are the accounting equivalent of reading Miranda. Preparer to client: "You have the right to remain silent..." Wait a minute, Miranda gives more rights than taxpayers have. Never mind.

A seminar presenter offered a set of facts that put the imaginary taxpayer's qualification for business-use-of-the-home squarely in that big gray area. He asked how many would take the deduction, and how many would not. 20% would take the deduction, and 80% would not. That was quite the harrowing demonstration.

You hit the gray area, explain it to you client, then let your client make the decision. But it's not really the client who makes the decision. Whether it's in the way you present the question or a direct recommendation of the course of action, it's the preparer who makes the decision.

I'm not saying to go hog wild in claiming all sorts of questionable deductions. All I'm saying is to stop handing your clients' money to the government because you're worried a revenue agent might see the gray area differently.

If we're not going to take a stand on behalf of our clients, we're just filling out forms.

[Lion]

We're not auditors

We should not file a return we know is wrong, black instead of white. However, in that great gray area, we should explain the options and possible results to the client and let him make the call. We're tax preparers and not IRS auditors. I get nervous reading posts from preparers who made the decisions for their clients. We only need a one in three chance of prevailing with the IRS to avoid a frivolous position. We have no business calling our clients liars. Nor are they dummies who can't think for themselves. If we can't represent our clients well due to a clash of ethics, we should send them elsewhere.

[Lance Emerson]

I get nervous reading posts from preparers who made the decisions for their clients. We only need a one in three chance of prevailing with the IRS to avoid a frivolous position.

Preparers make decisions for the client every time they do a tax return. That shouldn't make anyone nervous. It's our job. The point here is that we make the decision whether we think something is a gray area or not. Unless you've never told a client "That deduction's not allowable," you're making decisions for the client as part of your job.

When a Big Gray flies in, yes, the decision on whether to keep it is supposedly the client's. You give them all the information you can and let them choose. You do your best to inform them the best you can, and do your best to elicit the decision that's best for the them. No argument there. It's certainly what any responsible preparer strives for. Unfortunately, I believe the notion sounds good but doesn't represent reality.

Let's say you have three Big Grays squatting on the desks of three competent, responsible preparers. Let's say Preparer 1 says "Take the deduction," Preparer 2 says "Don't take the deduction," and Preparer 3 says "It's a Big Gray. It might fly, it might not. You decide if you want to take it home."

Preparers 1 and 2 made the decision for the client. Preparer 3 didn't make the decision, but will offer his or her opinion as to how hard it is to take care of Big Gray or how cute Big Gray is.

We can all pretend that we're Preparer 3, but let's face it. Most of our clients couldn't get past the heading information on a tax return without screwing it up. To say they're making a truly informed decision about a technical gray area is tenuous. Clients rely on us so completely, it's a stretch to say the client is ever making an informed decision, especially when you're talking about analysis of subtleties within the tax code.

[Bees Knees]

Grey areas are one issue. But what about legitimate deductions that cannot be substantiated. We’ve got some tax guy out there who thinks its his job to enforce the substantiation rules because he doesn’t like a receipt written on a napkin. Well, do I need to start quoting court cases where napkins are acceptable documentation?

I’m not saying you just always take the client’s word for it. But you don’t go jumping down their throat just because you believe a construction contractor ought to have neat and tidy books. Get real. Many don’t and never will. Some clients are only capable of throwing receipts in a brown paper bag and dumping them on your desk at tax time. That doesn’t make the deduction any less legitimate. The question is are you going to work with the client and help them comply, or act like an IRS agent and promote the propaganda that it isn't deductible unless you have miles of paper work to substantiate it?

[Gretel]

Napkins

That reminds me of a conversation with the real estate agent after closing who remembered his first contract, which was written on a napkin and - of course - all legal.

I tell my clients all the time they can write their own receipt on a piece of paper if it is nothing material and not a lodging receipt. But even that is often too difficult. Just telling us what they did during the year is often too difficult since they don't have any idea what could be tax related.

How do you ask about something that you don't know about and falls out of the normal area of what can happen?

[lsmith]

Grey areas

I had answered this before, but somehow or another my answer flew off into never never land.
I agree that we are not auditors but any of us who have done taxes for awhile know the tax law on most subjects and know what is unreasonable and what is not and usually advise the client. Most of the time they will back off and not be persistant yet some still are. For those that are, if it seems fairly reasonable, I file as they want. If I believe that something may not fly or is unreasonable, I tell them. If I know that the probablities are likely that it is highly unreasonable or on the face of it highly likely to draw attention, I let them know. All of us have filed something that we felt had a problem area in it and I usually let them know that I am uncomfortable with it.
May clients are poor record keepers, yet that alone would not not prevent me from filing for them. It is their return and they are required to back it up.

[Lion]

Gray

The client may not be able to recognize a shakey tax position, but he is capable of telling us how aggresive or how conservative he wants to be, whether he's willing to wave a red flag or not, whether he wants to risk having to explain/document something three years from now. Then we can help him choose the position that fits his risk tolerance.

[geekgirldany]

Deductions

First this is CD from that other board

I've been in many situations where a deduction might be questionable. What I always tell them is that it may not be allowed if you are audited. Clients still tell me to go ahead and deduct it. What about clients that bring information on just a piece of notebook paper no receipts? I don't ask them for receipts. They are responsible and as long as I get my little engagement letter I'm covered.

[Lance Emerson]

"...any of us who have done taxes for awhile know the tax law on most subjects and know what is unreasonable and what is not and usually advise the client."

Believe it or not, while this discussion may seem to have veered off into areas unrelated to the initial topic, it hasn't really.

The initial topic was discussion of the IRS turning tax practitioners into government agents by requiring us to perform investigations and to screen taxpayers for honesty before they file a return.

The level of a tax preparer's adversarial attitude is directly related to the issue of how much responsibility that we, as a practitioner community, have in allowing ourselves to perform enforcement functions.

I believe the comment "what is unreasonable and what is not" in the context of the level of aggressiveness displayed by a tax preparer is at the heart of this discussion. The term "reasonable" is bandied about as if there's some universal definition of the word. That's not true. That was the point of the parable about the three Big Gray birds. Three preparers came to three different conclusions. All reasonable, all professional, all with opinions filtered by personal experience.

I'm not trying to persuade people to push their own envelope in their personal definition of what "reasonable" means, in fact it's quite the opposite. I'm trying to persuade practitioners to more closely follow their own definition of reasonable, according to their knowledge and experience, and to stop worrying about what some nameless, faceless revenue agent might think two years from now.

If you advise your client based on whether you think a revenue agent would approve instead of based on what you believe to be correct, you're already working for the government.

I cringe when I hear other tax preparers tell their clients "Don't take that deduction because an auditor wouldn't like it." My negative reaction does not go anywhere near passing judgement on whether I think the preparer's opinion is "reasonable." My reaction is based on what I believe is the preparer abandoning his or her responsibility as an advocate.

[Lion]

Irs

Yes, Lance. The IRS will never write our client a letter to tell him he could've taken a deduction he didn't. Our clients hire us to be their advocates. We can warn them what deductions risk being disallowed by the IRS if audited and encourage them to keep appropriate documentation, logs, calendars, receipts, notes, and even napkins, to help their chances. But, we shouldn't discourage them from taking a deduction because the IRS might not like it; then we've moved over to advocating for the IRS instead of our client. (If I sniff fraud, that's a different issue, though.)