Discussion:Statute & Preparer fraud
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Discussion Forum Index --> Business Growth Community --> Statute & Preparer fraud
Death&Taxes (talk|edits) said: | 6 March 2007 |
| Checkpoint calls this a case of first impression: http://www.ustaxcourt.gov/InOpHistoric/vallen.TC.WPD.pdf | |
| 6 March 2007 | |
| This is why we need licensing and regulation of all paid preparers. | |
| March 6, 2007 | |
| I don't know that that solves the problem Kevin. So Andersen, just to take a wild example, wasnt' heavily licensed and regulated enough? It's training, desire, maybe requiring an apprenticeship that's successfully completed makes the most sense, where the newbie can learn at the feet of those in the biz a long time. Continuing ed is ok, but many folks just come for the lunch and nap. But more gov't oversight isn't usually the answer to just about any question, in my mind. | |
| 6 March 2007 | |
| I don't know if licensing and regulation would solve that problem either, but it would solve the problem of people opening up a tax office who know nothing about taxes. I had a new client come in yesterday, she brings me the prior year return. Wages, 50,000; social security, 20,000. Filing HOH with 3 kids; after reviewing the return, it turns out the social security was for her son, (who, by the way, was not claimed as a dependent), it was back pay for 3 years, all claimed on the mother's return. 85% taxable. I questioned her about it and she said her prior preparer told her it was taxable to her since the child lived with her in the prior years. | |
Death&Taxes (talk|edits) said: | 6 March 2007 |
| That is preparer stupidity, not preparer fraud!!!!! | |
| 6 March 2007 | |
| Licensing and the PR that would go along with it (The IRS would encourage eveyone to ask if their preparer was licensed and what credentials or continuing ed they had) would go a long way toward people choosing ethical preparers. Getting rid of unethical preparers like the one in this case is good for all of us.
The only way now to get rid of them is to catch them doing these things to clients. The client is the innocent one, and the innocent always suffer. So, JR, your proposal would be for more pain and suffering? | |
| 6 March 2007 | |
| The taxpayer lost this case as soon as he conceded the return was fraudulent. A correct decision by the court, in my opinion. The taxpayer was lucky he didn't get hit with fraud penalties.
As JR1 cites in the example of Andersen, there's no way to prevent this type of thing. It's why we have a criminal justice system. I'm not so sure all taxpayers are innocent in these types of things. Of course they are eager for that increased refund; it's free money. But the old adage applies...if it seems to good to be true... | |
| March 6, 2007 | |
| Kevin, I remember when the AICPA had the bright idea to brand the CPA logo. That's helped a lot hasn't it? And now, CPA's all over the place get into the tax business who are just as dumb as the guy who started HRB school, on taxes...credentials, licenses, all that stuff, merely further mislead the public. There are many folks out there who still believe that only a CPA can do accounting...unti I explain to them that technically and by training, they're merely competent to do auditing until they expand that base of knowledge. Are these licensing and regulations really for the public interest, or the protection of a segment of a profession? I pick 2. | |
| 6 March 2007 | |
| I am an accountant, not a CPA (nor do I pretend to be one), but I have come across many CPAs (or they say they are CPAs) whose work truly terrifies me.
I have a client whose first "CPA" set her up as as an S corporation, except she never filed Form 2553 with the IRS. Of course, the two years worth of returns the CPA filed for my client came back rejected....wonder why? I have another client who I work with on a monthly basis handling his company's payroll and basic bookkeeping, but he wants a CPA handling his annual return (fine, I don't have a problem with that). This CPA takes my numbers and inserts them into her software program....and charges my client $100 (which I just find way too cheap for the amount of work that this 1120S return requires). Her numbers on the Schedule L do not even equal. I broached this subject with my client last April that there were too many mistakes made on the return and that I was uneasy with it. My client dismissed my concerns, because his preparer was a "CPA" and her work was affordable. !!!! There are some excellent CPAS and accountants out there, and there are some truly horrific ones, as there is with any field, but I would have no problem with requiring licenses for any tax preparer (myself included). If contractors are required to have licenses to work on your home, a realtor to have a license to sell your home, and a lawyer to have a license to represent you in court, I think it is only fair that the people handling your finances should also have a license. Of course, this doesn't keep all the idiots out, but at least it makes it alot harder for all of them to get through. Just my thoughts. Dani | |
| March 6, 2007 | |
| As much as I would hate it, testing with the licensing is probably the only way to establish a minimal level of knowledge. But my problem there is that I'm going to have to be tested on stuff that I'd never ever do. There are foreign tax experts, and estate and trust tax experts, and C corp experts...and those are worlds that I don't live in, nor care to. And to spend endless hours on the fine points of head of household or exemptions and domestic partnerships!...I'm a small biz/tax guy. Test me on that, give me a license, and I'll stay in that fence line...but leave the other stuff to others. Of course, it wouldn't work that way. | |
| 6 March 2007 | |
| JR, I assisted in validating the SEE exam this last year. Your knowledge would allow you to pass without a problem. The licensure exam would not even be as difficult as the SEE. | |
| March 6, 2007 | |
| But you still have the people out there that prepare return using turbo tax and never sign them. I see this all the time. | |
| 6 March 2007 | |
| I can't see this as an issue relating to licensing or knowledge of the law. My experience is that preparers who do this are motivated either by greed (big refunds build client base) or ego (I have the power). | |
| 6 March 2007 | |
| Can anybody explain to me the following, since I’m new in this field.
If a client brings me 1099-mics, and tells me that he spent certain amount of money for gas, tolls … Do I have to trust him? Do I have to take any kind of documents from him, that confirm that he is in charge of the numbers that I put on his return? Do I have to believe my client that gives me the name and EIN of the day care center, and tells me to claim child care expense? Who is responsible for these numbers, if I sign the return as a preparer? | |
| 6 March 2007 | |
| Client is first, last, and always responsible for the numbers that appear on their returns. If the client provides you information orally, make a note of it including the date and time. If you have reason to not believe the client, then you have a professional dilemma.
You do have to see actual W-2s and any forms with withholding on them. | |
| 6 March 2007 | |
| Dsglouise,
The client is usually liable, but I require documentation either in the forms of receipts, bank statements, copies of W2s and 1099s, etc. The majority of my clients I see weekly or at the least, monthly so I feel very secure in their bookkeeping and that the figures and information are correct. I only have a few clients who I see only at tax time. Why do I request the information that I do? Because, my name is at the bottom of these returns. In return, if my clients are ever audited I am always there to meet with the IRS, the state departments, the employment commissions, or the insurance auditors. I feel very secure in the numbers that I provide. If a client is willing to let me dive into their finances, then I am willing to go to bat for them. If I feel a client is being misleading or hiding information I simply tell them that I am not the accountant they are looking for and they need to go elsewhere. | |
Actionbsns (talk|edits) said: | 6 March 2007 |
| I don't have time to read all of this case, but I did read about half of it. After going through a nightmarishly similar situation about 12 years ago in California where one of the CPA's I did a great deal of work for, was found to be preparing fraudulent returns, my thoughts are that the client needed to be checking the return and noticing he didn't make all those charitable contributions, nor did he eat out that many times for business, etc. After going through all the hassles with IRS, lawyers, clients, etc. it became pretty clear that many of the clients really liked the returns prepared by the CPA and referred often to his special "magic" to make taxes disappear. They also really hated it when IRS was knocking on their doors, literally, and researching their files with a fine tooth comb. Licensing would have changed nothing in this situation. One year my husband, thinking I couldn't possibly know enough about taxes to prepare our return, took them to someone a friend of his referred. He was referred because of the "magic" he applied to returns. When I got it home, I refused to sign it. It was full of bogus stuff, and he left off completely the only true deduction we had at the time, which was child care. Taxpayers have to be aware and alert to what's going on their returns. If it looks like magic, maybe you need to open your eyes, because the last time I looked, the only people doing magic live in the world of Harry Potter. | |
| 6 March 2007 | |
| If the client is always liable for the numbers on his return, what are my responsibilities as a paid preparer? Dani, it’s good to know that you are an honest person, so am I. However I see that some times accountants are sued for a fraud. Why? How can I prove or how they can disprove if the client told me these numbers on certain day/time? People comes to me with different kind of papers, very often handwritten. There is no signature, a lot of mess… I take it, try to figure out what they mean by this… And based on these mess make a return. Is this right thing to do? Am I in trouble? | |
| 6 March 2007 | |
| Dsglouise,
You are trying to the best with the information that you have. What I would probably suggest is prepare a basic 3-4 page Year End Data Accounting Sheet (make a whole bunch of copies) and mail it to your clients at the beginning of each year. The first page could be a declaration statement from the owner/individual that "the information on the form they are providing you is correct, complete, and true to their knowledge" with their signature. The second page is basic information (written by them) showing their name, address, DOB, SSN, and any dependents (including name and SSN). The third and fourth pages page would consist of questions relating to their W2s, various 1099s, mortgage interest, personal property taxes paid, child care deductions, if they operate businesses, etc. What this would do is provide you a detailed sheet where you could access information quickly and it would avoid any kind of miscommuncation between you and the client. The detailed sheet isn't always fool proof, mistakes do occur and I always recommend doublechecking the clients paper documentation (1099s, W2s, mortage interest statements, K-1s, etc) versus the income data sheet, but it should ease a large burden off your shoulders, as well as, the clients. | |
| 6 March 2007 | |
| Dani, do you do this procedure with your clients? Does anybody do this kind of procedure? It’s a lot of additional work
I was using different accounting services for many years, before I started this business myself, I never signed anything like this. I always knew that I’m responcible for numners, and very often I simply made an accountant redo my return, because the deductions were too high and unrealistic. My question remains, what are mine responcibilities as a pay preparer. How anybody can blame me for fraudfull return preparation? Is there any strait unswer? | |
Actionbsns (talk|edits) said: | 6 March 2007 |
| DSG, my sense is that the preparer who is preparing a bogus return, pretty much knows they are doing so. There is a huge difference between fraud and making a mistake. One of the things IRS found in my CPA's files were several sets of financial statements, all for apparently different uses. he was also convicted of bank fraud. I would be willing to bet the CPA in the cite above also was very much aware of what he was doing. One thing I have never been able to figure out, though, is the why of it. Why would you intentionally do this when you get nothing in return for it and could possibly land yourself in jail. Is the ego of some people so distorted that they feel the need to be liked so strong that they'll do anything to get there? | |
| 6 March 2007 | |
| Dsglouise,
For my clients who I only see once a year....yes. Most of my 1040 clients fill out the first and second page or write "Nothing has changed" on Page 2 and sign Page 1. Although I am very close to the majority of my clients and am familiar with such things as....whether they just had a baby or Susie has started college, etc. I don't know if they sold their Vanguard investment or Jim just installed a new gas heater. I usually require it for business clients for such things as mileage, inventory, disposal or purchase of assets, etc. Do they usually fill it out? No. But, when we meet the first time of each year to swap information I briefly ask questions, fill in the blanks, and have the customer sign. I want to make sure that the information that I am providing to the client and to the IRS is accurate. I also want to provide my client the biggest refund or lowest tax bill that is legally possible. It isn't for everyone, but it helps me. I just offered it as a suggestion. Best wishes. Dani | |
| 6 March 2007 | |
| Thanks, Dani. I guess I have to start practicing to do the same. | |
| 6 March 2007 | |
| "This is why we need licensing and regulation of all paid preparers."
I disagree Kevinh5. I agree with JR1 and others. Licensing does nothing but create a new bureaucracy that accomplishes and provides little to nothing for taxpayers. Also, licensing as a CPA, EA, lawyer, doctor, etc. does NOT guarantee that the licensee is compentent. I refer you to this post as proof of that (go to the very bottom) Discussion:1099-Misc and form 4137. In many cases, licensing does show that someone is able to study and pass a test and that is about all. I could tell you war stories when I worked at the IRS of literally thousands of incompetant preparers that were licensed but didn't know what they were doing. I can tell you of arrogant licensed lawyers that thought shouting and threatening or ignoring requests for documentation would divert attention and cover for their incompetence (it didn't work on me). The license they had been given made very little difference in the quality of their work. In my area, tax fraud is rampant. I have had several taxpayers come to me telling me of other preparers telling them that they could "guarantee" bigger refunds than anyone else. I've had taxpayers bring me audit letters and when I look at their return being audited and ask a few questions, the fraud by both the preparer and taxpayer becomes evident very quickly. Much of this is being done in the Refund Anticipation Loan side of the tax business because the large volume of clients means huge profits for the preparers. "Why would you intentionally do this when you get nothing in return for it and could possibly land yourself in jail." I've had taxpayers come in and either suggest or ask point blank to falsify their tax returns. I explain that I'll consider it for a fee of $10,000,000 because otherwise the potential jail time and fees for tax fraud are not worth my normal $50-$200 fee I would charge them. I then tell them I can't help them and send them on their way. I have yet to have anyone pay me the $10,000,000 fee. | |
| 6 March 2007 | |
| Dsglouise,
I require all of my clients to fill out some paperwork and sign it. They have to fill it out in their handwriting, I never fill it out for them. I also ask them to provide me with documentation, for example, W-2's, SSN cards for dependents, etc., that I make copies of. That way, if there is any question about fraud later on, I have documentation plus signed paperwork from the taxpayer to protect me, or at least I think will protect me (I'm not a criminal defense lawyer). I had one client that filled out the paperwork and claimed head of household and two dependents but her income level was not enough to support that. I asked her for rental agreements, receipts for rent payments, electric bills in her name, etc. She never provided the documentation so I didn't prepare her return. Yes, it is more work and takes more time but I sleep much better at night :) | |
| March 6, 2007 | |
| I use a two page Organizer which has a signature line and disclaimer that it's their numbers, not mine. Many do send them, signed. Some are blank other than the signature. In court, I can demonstrate that every single client got one, returned or not. It's on them, not me. Rule #1, keep me out of jail. Rule #2, keep client out of jail so that they can send more money. But #1 is #1. | |
| 6 March 2007 | |
| There's no excuse for outright fraud, but the service keeps harping about the tax gap, with the implication that we are at fault as preparers. We are the ones that have to translate this complicated tax code for the person on the street. I have noticed many business clients who do not have the office personnel they had even in the '80s. They try to handle administering the business with an answering machine, and an accounting program. Fine when everything perks along smoothly, but let them have a year with a lot of complicated transactions! I would argue that the tax gap would be much larger without the preparers out there who try to make sense of it all, under time pressure to boot. | |
Death&Taxes (talk|edits) said: | 6 March 2007 |
| You mean,JD, they buy Quickbooks and hand you a mess of pottage? "Double entry? What's that?" At least when they bought Quicken it was only a matter of categorizing a lot of unassigned transactions. QB can be the Bermuda Triangle of accounting; things get lost in there and never are found. | |
| 7 March 2007 | |
| Yes! Not that long ago, there was an employee at the small client's office known as the bookkeeper and/or secretary. If the client was lucky, and many of them were, this person was a stickler for detail, and, regardless of education, at least managed to keep a disorganized boss reasonbly in complicance, or, saving that, at least saved the paperwork in a file that could be found. I guess these people are extinct now, and I'm showing my age. | |
| March 7, 2007 | |
| I'm glad that someone agrees with me about QB, D&T, and how the old Quicken is still better than QB. | |
Death&Taxes (talk|edits) said: | 7 March 2007 |
| I keep my business checkbook and the three business cards on Quicken while my billing just went to Simply Accounting and all this for about a third of the price of QBs. Payroll is on a Quattro Pro spreadsheet and ties in with the net checks in Quicken. The billing is not tax return related since I am on a cash basis, but mine is the rare practice here that bills 90% of the clients. At the end of the year I open an Excel spreadsheet, put the ending prior year figures as the beginning ones and enter the Quicken summary and the payroll summary.
Last two write-ups I had I used Quicken for two incorporated checkbooks and went through a Federal audit unscathed and with compliments. | |
| March 7, 2007 | |
| I keep my checkbook, cash expenses, and stock buys and sells on Quicken (DOS version), use Greatland for monthly payroll clients, and use Peachtree for monthly accounting clients. Only used Excel once, after my dad died, to keep track of how everything was split between my dad's two beneficiaries. I use receipt books for tax clients and prepare them manually when I finish each tax return (enter just the total amount of their bill). They pay me when they pick up their returns or send checks in the mail for those that I mail out. I try to keep everything simple and quick. | |
| 7 March 2007 | |
| That's the way to do it. I am now in the process of detangling for a client "Open Balance Equity" from a less than ideal set-up of QuickBooks. Forsake all hope those who enter here.... | |
Www.cpa1.biz (talk|edits) said: | 7 March 2007 |
| Licensing allows a person to have professional skepticism because they can lose that license. I see that as a plus. I myself being a young CPA question situations a lot if something is wrong or right for the taxpayer because I want to keep my license. Maybe as I get older, I will stop being so skeptical as I can see by the very few audits that happen based on this forum.
A person who does not have a license may not care what happens and go on to the next business like selling FAKE stocks by email, which I get all the time. Forget fraud, here is a legit way to get in some customers: http://news.yahoo.com/s/ap/20070306/ap_on_go_ot/irs_refunds They got only a month and a half :). | |
| 7 March 2007 | |
| 'Opening Balance Equity' - There mere mention makes my shoulders bunch up. I burned last Sunday wading through one that was somehow converted to an equity/receivable/suspense holding account. | |
| 7 March 2007 | |
| Will, I trucked over and purchased a book by Kathy Ivens, "Running QuickBooks 2007 Premier Editions", thinking she would have the answer to how one muddles through this. She did not, but I think she thought she did. Heh. Seems to me the only way to get it straight is to sit down and have hundreds of questions for the client, essentially recreate. Client thinks this was all solved when he purchased the program, and is he prepared for this bill?! We can't win. | |
| March 7, 2007 | |
| Delve into Sleeter.com site. Doug's the absolute best on QB's, there's a knowledge base there...and a network of experts. | |
Bottom Line (talk|edits) said: | 9 March 2007 |
| "Opening Balance Equity" is like fingernails on a blackboard. That's one of the first places I look for problems. Then I proceed to explain that since there is a number there (ANY number), we've got lots of work to do. | |
| March 9, 2007 | |
| You soon learn that OBE is your best friend...you can quickly see what's messed up in order to fix it. Many other things remain hidden and take some digging to find. | |
Bottom Line (talk|edits) said: | 9 March 2007 |
| JR - you look at it as a glass half full while I see it as a glass half empty. The important thing is that we both focus on it as a "Hello - there's something wrong here!" item. | |
| 10 March 2007 | |
| More proof that having a license does little to curb preparer fraud.
"Evelyn C. Hume1, Ernest R. Larkins1 and Govind Iyer1 (1) 1840 Galilee Court, Tucker, Georgia, 30084, U.S.A Abstract The Statements on Responsibilities in Tax Practice (SRTPs) provide guidance to the CPA when making decisions in tax practice. Many of these decisions are ethical in nature and have implications for tax compliance. In this study, a survey methodology is used to test whether the SRTPs affect decisions that CPAs make. The findings suggest that a clear majority of CPAs follow the SRTPs when making ethical decisions relating to tax return preparation and that CPAs follow the SRTPs more often than unlicensed preparers on half the issues tested. (emphasis added) However, a statistically significant number of CPAs do not follow the SRTPs and, CPAs do not follow the SRTPs any more often than unlicensed tax preparers on three issues." (emphasis added) | |
| 10 March 2007 | |
| JR, thanks for the nsleeter.com link... Me thinks that OBE is thy junk bin for wrongly inputted stuffs....aye, or RRR maitie, or whatever? | |
| 10 March 2007 | |
| So, Ex, I want to know: If you ever get a taker on the $10,000,000 will you throw it onto the Sch C, subject to SE tax, or line 21 figuring your not in the business of preping fraudulent returns? :) | |
Death&Taxes (talk|edits) said: | 10 March 2007 |
Isn't there a famous routine that paraphrases the 10M: we've established what you are, madam, we are trying to establish the price. 
| |
| 10 March 2007 | |
| "So, Ex, I want to know: If you ever get a taker on the $10,000,000 will you throw it onto the Sch C, subject to SE tax, or line 21 figuring your not in the business of preping fraudulent returns? :)"
Why of course on Schedule C so that I can write off my trip to the Bahamas or some other tropical locale (that is where I will set up my fraudulent tax return practice). LOL "Isn't there a famous routine that paraphrases the 10M: we've established what you are, madam, we are trying to establish the price." Hey, did you just call me a 'ho? LOL | |
