Enforcement of New Tax Preparer Rules

[Mike Mac]

Did many of you catch this bulletin that came out a couple days ago? http://content.govdelivery.com/bulletins/gd/USIRS-6954d
It talks about IRS beginning enforcement of the new preparer rules. Out of the 700,000 of us that renewed or got PTINs, they found a whole 19 people who had a felony record but did not disclose that fact in the application.

The IRS is also piloting methods to help identify returns that appear to be professionally prepared but are unsigned by the preparer. I am curious to see how that works out. I picked up a few clients this year from folks who used to do it that way and now are seemingly getting out of the business rather than risking the wrath of the IRS. When I get new clients, I always have them bring their past three years of taxes with them to review. It seemed odd that for years they were "self-prepared" but when you look at Schedule A they all had an amount recorded for tax prep (even though it did not put them over the 2%). The amounts were never cheap. I don't quite understand why anyone would take their taxes to someone who does not have the confidence to sign their name to a return.

[taxmom34]

isn't it possible that preparer had signed the original return but not the client copy? i've seen a few of those.

[AZ-Tax]

professionally prepared but are unsigned by the preparer

Had a new client like that this year.....No PTIN and signature on the 09 tax return he prepared. New client was bragging about the price and I suggested they go back to him but they were uneasy with him how he did things OR they could have BS me and he told them he got out of the business.

[JohnH]

I prepare quite a few returns that I don't sign. All are charity cases and family members whom I don't charge, but they are printed using ATX software with no peparer info and no signature in the jurat. Guess we may be seeing a few inquiries about those.

[joanmcq]

That was 19 people who were either felons, or had been barred from preparing taxes or both.

I wonder how many people who were preparing just stopped or didn't bother to get a PTIN and may get caught up in the 'self prepared' sting.

John, I sign all of 'em as preparer, even my own. It's just easier that way. But I don't do many, if any, charity cases.

[JohnH]

Joan: I used to sign all of them, but then I decided to follow the instructions. It clearly says to fill in and sign if you are the paid preparer, and since I'm not the paid preparer on those returns, I stopped doing it a couple of years back. I still list myself as the contact person on many of them, but not the paid preparer.

[Koss]

Unsigned Returns

I think the IRS is well aware that there are several scenarios in which a tax professional may prepare a return that he is not required to sign. As noted in this thread, the IRS instructions clearly state that someone who prepares a return but does not get paid for should not sign the return.

At my office we also electronically file a couple of returns each year that are not signed, for family members. I don't think those cases are of interest to the IRS. They may not have a PTIN associated with them, but they still get filed electronically using our EFIN. The fact that we are legitimately filing the return through our professional e-file platform tends to show that everything is above board.

I think the IRS is interested in something else. The real under-the-table crowd, that has never had a PTIN, and sure isn't going to get one now. They don't use professional tax software, either. They use TurboTax or some other DIY product. The more sophisticated ones, or, depending on your perspective, the ones that are lazy or sloppy, may even use a few different products. They may file some of their "clients'" returns using an online platform that is free, and some using TurboTax, and some using a different product, such as the HRB boxed software.

Others have commented that those who have a thriving business of this nature would not mind having to buy multiple copies of the program in order to e-file as many returns as they want to.

The IRS might just be getting serious about catching these guys, using a variety of tools. It wouldn't take much in the way of administrative regs for the IRS to require the vendors to report to the IRS cases where more than five returns have been e-filed from the same IP address using a consumer DIY application.

And it would also be pretty easy to design a pilot program to analyze paper returns that are not signed by a tax pro. Such a program could focus on returns that are reviewed for "math error" corrections, dependent issues, income matching, etc.

A simple telephone interview conducted by the IRS would help identify paper returns that were prepared by someone who charged a fee but did not sign the return.

And they may in fact be looking for cases where screwball tax pros try to take the position that they prepared the tax return "for free," while they charged the client for a bunch of other stuff like bookkeeping or payroll services.

I've noticed that most professional tax software seems to put some sort of code at the bottom of the 1040, which I think identifies which program was used...

BMK

[erchess]

Multiple Copies, etc

I agree that having to buy multiple copies of diy software is not an issue and neither is using more than one package. When I was first in this business I decided that I didn't want to turn down any return because of my software or resort to PDF Forms so I bought Intellitax through a reseller and then CS Ultratax on a pay per return that I simply built into my fees. I think the first year I didn't get the non 1040 modules of Intellitax and the second year my vendor didn't make the state entity programs available until 3/15. The third year I bought Intellitax from another vendor and had no problems with it but there were still returns for which I chose to use Ultratax. I eventually decided that Drake has all I will actually be called upon to do and that turned out to be a good thing for me because Intellitax was sold and discontinued effective for my first year with Drake but the point of my story is that I didn't mind paying as much as $50 per return because I was charging the client so much more than that and they were accepting my fee because it was in line with the fees of other professionals. There are headaches in this business for sure but the cost of software does not need to be a significant one whether you are a real pro like the users of this board or a fly by night who does not even register with the IRS or any State.

Burton mentioned getting the software companies to flag people who file more than five returns with a given company from the same IP Address. I could be wrong, but I think that would be easy to get around and I know it is possible to get around. What is easy is to use dialup internet service where you have a different IP every time you log in, or simply disconnect your fast internet and reconnect and have a different IP I also understand that you can legally buy software that disguises your IP Address. I use a service, not software, when I transmit returns or do personal finance from a WIFI HotSpot and it appears to any other computer that sees me that I am from totally somewhere else than where I am. (That's right your accurate IP Address can be used to nail down your physical location usually within a block or so and sometimes to a building such as an apartment complex. And yes every email you send contains this information in its header although I believe disguise is possible.)

[joanmcq]

It's possible, but somehow I would guess that most fly-by-night preparers are not sophisticated enough for some of these work-arounds.

[JG EA]

On the not signing - I sign returns that I may not charge for. For example an amended return to do something for a client that I missed. I consider that actually I am being paid as part of overall service.

[JohnH]

I think that preparing an amended return, regardless of whether you charge for it or not, would require a signature if you charged a fee for preparing the original return.

But if I had not charged for the original and didn't charge for the amended, I wouldn't sign either one. (As a matter of fact, I think I have had a situation like that in the past).

[Bees Knees]

How do you sign an e-filed return as a paid preparer?

If your answer is by using Form 8879, then does that mean we can't use the practitioner PIN method for filing non-paid returns for friends, family, or even ourselves?

Seems rather silly to say you can’t sign as paid preparer for a return you do for free for a friend, when we are all signing as paid preparers for our own e-filed returns.

[Koss]

Unsigned, but filed electronically

Bees--

I don't think anyone is really claiming that one cannot sign a return that is done at no charge. But the IRS guidelines are pretty clear. A signature is not required on such returns. The IRS guidelines also explicitly state that a signature is not required when one prepares a return through one of the IRS volunteer programs, such as VITA, TCE, or an LITC. In fact, the regs state that one who prepares this type of return is not a tax preparer, and is not held to the same requirements as one who actually collects a fee.

It makes a difference, in very technical ways, which hopefully don't come up very often. For example, one who signs the return as the preparer, but is not an EA, a CPA, or an attorney, can represent the taxpayer in an examination. I'm not sure that one who does not sign the return can do that, even if they prepared the return at no charge for a family member or a close friend. (But there are some other IRS regs that allow a person to be represented at an audit by certain members of their immediate family, regardless of whether that family member prepared the return.)

The point that was made earlier in this thread is that most professional tax software gives you an option to remove the preparer PTIN and other identifying data. When you do this, the preparer fields will be blank when you print the return. And even if the return is filed electronically, the preparer data is not transmitted in the return.

The program will still transmit the EFIN and the identifying information for the ERO. And Form 8879 is still required. But one can sign Form 8879 as an ERO without signing the tax return.

Signing as the ERO and signing as the preparer are not the same thing. The ERO and the preparer may be two different people. The ERO may be an individual or a firm, but the preparer can only be an individual. A person, or a firm, can be an ERO without having a PTIN. One who functions solely as an ERO could never be held liable for a preparer penalty.

When I worked at HRB, we were able to electronically file a return that the taxpayer had self-prepared, or a return that had been professionally prepared and signed by a "third-party" preparer who did not work for HRB. In recent years, HRB raised the price of this "e-file only" service pretty high--typically around $100--to discourage it. Their whole point is that you might as well pay them to do the return.

And most of us probably feel the same way. At my office, we don't electronically file any returns that we did not prepare. I'm not saying we would refuse to do so, but we've never had anyone ask us to do it.

But the option is there to do so. A return can be filed electronically with no data in the preparer fields. And that is exactly what many of us do when we file our own return or returns for family members that we do at no charge.

In fact, I'm fairly certain that this is exactly what happens when a return is filed through TurboTax, or any of the other DIY platforms. The software vendor is not signing the return as the preparer. But they are certainly functioning as the ERO.

BMK

[Bees Knees]

Signing as the ERO and signing as the preparer are not the same thing. The ERO and the preparer may be two different people. The ERO may be an individual or a firm, but the preparer can only be an individual. A person, or a firm, can be an ERO without having a PTIN. One who functions solely as an ERO could never be held liable for a preparer penalty.

I agree. So my question still stands. How does a paid preparer sign an e-filed return?

If your answer is by having the preparer's name printed on the 1040 along with the PTIN, then why in the old days if that information was on a paper return but the preparer forgot to sign the return, the preparer was subject to the $50 penalty?

The point is, IRS instructions on signing as paid preparer apply to paper filed returns. In reality, paid preparers are no longer required to sign when they e-file a return. All they have to do is make sure their preparer info including the PTIN appear on the return. Form 8879 is for the electronic signature of the taxpayer, not the preparer.

[FEDUKE404]

Huh ?

....The point is, IRS instructions on signing as paid preparer apply to paper filed returns. In reality, paid preparers are no longer required to sign when they e-file a return. All they have to do is make sure their preparer info including the PTIN appear on the return. Form 8879 is for the electronic signature of the taxpayer, not the preparer.

Interesting....does that mean I should now just ignore the information shown on Part III of Form 8879 (including the entry shown there as "ERO's Signature") ???

FE