Tidbits from the IRS, or "Is This Any Way to Run a Business?"

IRS Plans New Standards for Tax Preparers:
The Internal Revenue Service is in the process of improving tax preparer standards. Generally speaking, the new process will require anyone signing the return as a preparer to be registered. The new standards would also require preparers to take a certain amount of continuing education each year. These rules are already in place for Enrolled Agents but not other preparers. So essentially, in the future all tax preparers will be held to the standard of Enrolled Agents. CPAs are currently not Enrolled Agents, because they are held to a higher standard of conduct and continuing education. CPAs follow rules established by national and state governing Boards.

As a practicing CPA, I agree with the registration and education process. I have seen some very creative returns prepared at the local pawn shop-rapid refund store. BUT, the IRS also proposes a much harsher penalty on tax preparers for things that they (IRS) consider to be errors. This is where the real debate begins. The Service’s new preparer program wants all preparers to be “de facto” employees of the IRS.

As H & R Block says, “Our job is to get you the lowest tax legally allowable by law.” There are gray areas in tax law. There are disputed areas in tax laws. There are areas subject to interpretation. That is why we have the Tax Court and the judicial system. If the IRS is allowed to execute their proposed program, no tax preparer will ever push the limits of the tax law. “Legally allowed by law” will come to mean “as interpreted by the Internal Revenue Service”. There will be no need for the appeals division of the IRS or the Tax Court since there will be no challenges from preparers scared to death of the preparer penalty.

IRS is Focusing on Filling Increasing Number of Vacancies:
The IRS has approximately 106,000 employees. About 9% of those are managers. Of the 106,000 employees, almost one-half are age 50 or more. More than 39% of all IRS employees are eligible for retirement. Wow.

When I opened my first CPA practice in 1984, I could have the client sign a power of attorney, go to the local IRS office, discuss the case with an agent, and resolve the case with the agent that same day. Today our best approach is the “Practicioners’ Hotline”. Everything is done over the phone. Each time you call, you invariably get someone new. It is not unusual to talk with one IRS agent and come up with a plan, only to have a second agent tell you that your plan won’t work when you call back.

Our clients constantly complain about the IRS. Typically their complaints are not about the taxing process, because we all know the system. Rather, the complaints are about the fairness and difficulty in resolving their issues. Taxes are complex. Most people don’t understand tax rules and regulations. Talking to a computer only intensifies the frustration. This preparer fully supports the Service’s hiring mission. In fact, we believe that 106,000 employees is a woefully inadequate amount to fill the need. We support a significant increase in the number of agents. It will make everyone’s lives easier.

IRS Managers to Get More Involved in Tax Audits:
The IRS policy on audit dispute resolution is to resolve issues at the lowest practical level. This usually means the field agent. Unresolved issues are then pushed up the ladder to the managers. Still unresolved issues may be pushed to Appeals. While most of the field agents that we have encountered over the last 5-6 years have been solid in their tax knowledge, they have been woefully weak in their accounting knowledge. Precious few agents actually understand debits and credits. When you are hiring Art majors, English majors, and Psychology majors as agents this is to be expected.

What the IRS is really saying with this decision is that they have little faith in their field agents to make appropriate decisions. The real knowledge base at the IRS begins at the manager level. This is especially frustrating for the taxpayer and tax preparer because the reality is that no audit will be concluded until a manager is involved. Unfortunately, the manager makes their decision based on the field agent’s workpapers with no input from the taxpayer’s side! As a result, most skilled tax professionals accept that audit resolution will come at the third level - appeals. This costs both the government and the taxpayer money. It is a “no win” for both sides.

Summary:
The common thread in these issues is personnel. Each of issues previously discussed could (and should) be resolved by hiring, training and properly utilizing good personnel. The answer is not to make tax preparers pseudo-government employees, or to increase the number of agents answering the telephone. The IRS must determine its real staffing needs and approach the problem like any other business. Go out and get the right people, train those people well, and give them the tools and authority to do their job. A rather novel concept for your favorite government.

--Steve Cook is the managing partner at Cook & Associates, a public accounting firm offering clients a full range of accounting, tax, consulting, and auditing services through its offices in San Antonio and San Marcos, TX