Penalty Mentality

[Snaggletooth]

Just got back from a NCPE seminar in Charlotte. The speakers were very learned, and very effective. I would recommend a NCPE seminar to those who have never attended one.

These guys have contacts with the IRS, and if what they say is true about penalties, I might as well just close shop right here on the spot.

The new thrust is to begin penalizing preparers for issues where the IRS has not been successful in educating the general business world. By reasoning this out, this means areas that are difficult for business owners to understanding. Areas such as partner basis, K-1 disclosures, form 8919, etc. News flash - these areas are not widely understood by the majority of tax preparers either. Even the failure to test employer's HSA accounts for nondiscrimination is carrying a preparer penalty. I'll be honest enough to admit I didn't know a thing about this until the seminar.

The IRS has repeatedly maintained that they don't expect the preparer to audit the taxpayer. However, they also maintain that a preparer should be penalized for negligence. And now, the only way to avoid a penalty is to, in effect, audit the taxpayer.

If a client tells you they have a mileage log, and tell you they incurred 12,283 miles for business purposes, should you ask to see it? Having to examine it is a form of auditing the taxpayer, but failure to do so is now "negligence."

What this is doing, with increasing severity, is pitting the client against the tax preparer. Clients do not have to be dishonest to be offended by increased invasion of his records. And they will find someone else. Increasing fees will also chase them off. Somehow, ole "Shifty-eyed Sam" across town will survive these penalties because he is not knowledgeable to provide enough fodder for the IRS to use against anyone. Sam will do anything my clients want me to do.

This may backfire as the IRS may chase the really good preparers out of the business. Most of us have to find work in the offseason anyway, and I for one am NOT going to put up with this. The first such penalty might just do it.

[Jiggers]

Preparer Penalties

I know we are to get 2 hours of ethics CPE each year.

But I wonder why our organizations such as NAEA, NATP, NSTP, and state organizations won't put on a good 8 hour seminar on Ethics.

To include preparer penalties, how to avoid them, sample engagement letters, sample interview sheets, sample office forms, ideas on conducting interviews, disclosure forms, etc.

All designed to help us avoid preparer penalties AND to run a better office.

Every year I try to improve on my office forms, procedures, interviews, etc. And every year I increase my fee to cover this! And when questioned by the client, I point this out.

I know that some of our profession remark "...I've done it this way for XX years and will continue. I love a good fight with the IRS. Bring them on....."

I don't. I like having a smooth running office.

[joanmcq]

Hear, hear!

As a CA CPA I need an 8 hour ethics course every 6 years. But the one put on by Cal CPA was all on financial statement audit ethics, even though it was supposedly a course for tax & other folks...almost the entire class was either tax people or 'other', anything but financial statement public accountants but that was all we got. I really wanted more on the preparer penalties and comfort letters and what we can and cannot do as CPAs, but got none of that.

[Snaggletooth]

Las Vegas

Sorry NCPE doesn't have a seminar in CA. Next horse on the merry-go-round for you would be at Las Vegas on November 6-7. You won't be sorry if you can make it.

[Richcpaman]

Jiggers:

I like your take on this.

I know that some of our profession remark "...I've done it this way for XX years and will continue. I love a good fight with the IRS. Bring them on....."

I don't. I like having a smooth running office.

The IRS is going for the "Easy Underbelly", and that is the preparers. And there ARE crooks our there in our profession. Many of which get paid SERIOUS dollars. I doubt that MOST preparers will ever have to face the issue of these penalties. Not if you have a ONE-Time issue. But if you have MORE? I think you will get a visit.

And you know as well as I do that much of what the IRS DOES Is Bluster. Run your office ina business like manner. Complete the worksheets. You don't have to "audit" your clients, but you better do the proper due diligence. For your OWN sake. Yes. Most of this will take a little more time. And yes, you should raise your fees a little as well. Raising your fees will chase away the ones that are probably going to get you in trouble.....

Rich

[Snaggletooth]

Richcpa

And you know as well as I do that much of what the IRS DOES Is Bluster.

Rich, I have found your experience with these penalties to be true in years gone by. Until the 2007 Small Business act, I hadn't really worried about them, and in fact supported the idea of penalizing sleazy preparers who claim they can't see blatant abuse. I had always felt like penalties were reserved for extreme gross negligence or an overwhelming feeling that the preparer was actually abetting the taxpayer and then pretending he knows nothing about it.

I'm told that the new thrust is changing all that. The IRS is equating "negligence" with "failure to audit." We'll see.

Thanks for your post. Ron Jordan

[David1980]

Actually I don't prepare taxes anymore, my work is primarily in software at this point with limited numbers of returns prepared for certain people who knew me before and/or got referred. But I don't actively pursue that.

However it's amazingly disgusting how few prepares do even minimal effort to learn how to fill out a form they haven't done before. When I encounter that kind of thing I have my quick reference books (TTB), I'll go to to the IRS website and check form instructions, and any IRS publications if it's still not clear.

Most seem to stare at the entry in their software and try to interpret the true meaning of a 7 word sentence. They have all the same resources I have but are just too lazy to look it up.

If the penalties primarily target the "lazy" people like that then I'm all for it.

So I'm thinking these penalties will hit the people who systematically and regularily preparer incorrect returns. They should hopefully show leniency to the preparer who makes an honest mistake from time to time.

[ChEAr$]

I agree

(snipped....)

If the penalties primarily target the "lazy" people like that then I'm all for it.

So I'm thinking these penalties will hit the people who systematically and regularily preparer incorrect returns. They should hopefully show leniency to the preparer who makes an honest mistake from time to time.

However on another board with is "EA specific", we're having a discussion revolving around
IRS "cracking down" and being more aggressive.

What it all boils down to is this: "more likely than not". As long as we are conscientious
and do our best according to circular 230, there should be no problems.

Also from some comments I've noticed a sudden paranoia vis a vis IRS. To be sure in my first year in solo practice (still solo) I had the opinion that we were playing with a
stacked deck and that IRS held all the trump cards. No more. The average experience
of IRS examiners/auditors is really low now and we're going to confront some real novices
among IRS ranks in the future. If we're standing on firm ground and can maintain the
"more likely than not" criteria, we'll be all right.