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Dick Adams <rdadams[at]smart.net> wrote:
- quote -

Thank you all for your input. Your thoughts and advice
helped me a great deal while developing my paper. I am
hoping one day to work in an accounting field and i am still
very interested in this topic. please continue to write
about why or why not this is a good idea. In case anyone is
interested, Im posting the final paper for anyone who would
like to read it. Please post any coments or Criticism you
think I should hear. Thank you. Will Eckenstein.

Do You Really Save Money During Tax Time?
A Look at Paid Preparers and How They May Not Benefit You.

Prepared for: Tax payers considering hiring a tax preparer
Prepared by: Will Eckenstein
December 15, 2003
Abstract
Completing an income tax return is often extremely complicated, and
thousands of citizens hire a paid tax preparer every year. Consumers
need to be well informed about the expertise of the person they hire.
There are numerous pitfalls in hiring a tax preparer, the most serious
of which is that at the current time, anyone would be allowed to call
themselves a tax preparer and charge for this service, regardless of
experience or competence. The best way to remedy this situation is to
require an accreditation system for tax preparers.

Keywords: tax minimization, certified public accountant (CPA),
enrolled agent, audit

Introduction

The total amount of revenue generated by income tax in the
United States in 1998 was approximately 1.48 trillion
dollars (). The Internal Revenue Service has a complicated
and lengthy set of regulations that citizens must follow to
file their tax returns. A large portion of the population
decides each year that they cannot understand the paperwork
for filling taxes, or do not have the time (). The tax
preparation industry has grown to fill this need. Although
the United States government regulates the money supply, the
interest rates, and the amount of taxation, credentials are
not required for tax preparers. Individual tax preparers
should be certified in some way by the federal government in
order to prove competency and grant individual taxpayers
protection from persons who fraudulently claim to understand
the tax code.

Research Goals and Methods
To gather information for this topic, I reviewed several web
sites, including the sites for the Accreditation Council for
Accountancy and Taxation. I read publications, books, and
the occupational guide published by the U.S. Department of
Labor. Valuable information also came from personal
interviews with tax preparers and financial advisors. I
also spoke to an agent for the Internal Revenue Service
about the ideas in this paper.

Discussion

Overview and Reasons for Hiring a Tax Preparer
"Currently, any man or woman regardless of education can
legally claim he or she is proficient in tax preparation"
according to Mrs. Rayna, a local Tax preparer for H&R Block.
"They can charge a fee for tax preparation services. "If
mistakes are made by the tax preparer in the return, the
taxpayer is still held responsible." The number of incorrect
and improperly filed returns totaled $32.5 million for 2002.
(IRS…). According to financial author Charles Jaffe,
"Anyone who wants to can hang out a sign and operate as a
tax preparer. It is not always easy to check a preparer's
background or expertise." (203).

Americans spend over seven billion dollars annually having
their federal taxes prepared. Almost half of all income tax
returns are completed by a paid preparer (Masselli 1). The
reasons citizens choose to get help with their tax
preparation include timesavings, income level, tax
minimization, and desire for accuracy. In 2001, according
to the IRS, the average taxpayer took over 13 hours to
complete the yearly income tax return (Garcia 1). Tax law
complexity is yet another reason. The Internal Revenue Code
has 1.3 million words. The tax code regulations that
accompany it number 5.75 million words. Today our tax code
is so large that not even the "civil servants at the IRS"
can consistently apply it (Shlaes 16). The timely and
accurate preparation of tax forms is a daunting task that
frequently results in missed filing dates, incorrect
payments, and penalties. Very few people like to do tax
forms. The papers end up at the bottom of the work pile,
which can result in a last-minute rush to complete them
without much regard for accuracy. The solution that
thousands of citizens choose is to have their taxes
completed by a paid preparer, although fees can run into
high hourly rates (Bragg 241). Tax preparers say they are
trained to look for commonly overlooked items. They tell
people that they are trained to look for things that are
often missed, leading clients to rely on a tax preparer's
services.

Quality of Work by Tax Preparers
Millions pay someone to fill out their returns, believing
they will get every benefit the tax law allows, but this is
not the case. According to a study by USA Today, two million
returns were filed by tax preparers using standard
deductions, when using itemized deductions would have
minimized the clients' tax bills. The article estimated that
230,00 returns by tax preparers failed to claim the child
tax credit for the year 2001. Computational errors on
returns by paid preparers totaled 357,000 in that same year.
Researchers have also uncovered unethical practices such as
filing returns for married couples, where each one claimed
"head of household" status to boost deductions for each
spouse (USA Today 1).

Money Magazine does an annual study using 60 tax preparers,
involving preparing a hypothetical tax return for a family.
For the seventh time in the history of the test, no two
preparers came up with the same bottom line. For the third
time, no one turned in an error-free return (Caplin 1).
This indicates that even though people can claim to be tax
professionals, the quality of their results is not always
accurate. On a different test with 50 randomly selected
preparers from the yellow pages, ten questions were asked
about tax legislation. None got them all right, and only 34
got at least half right (Tritch 1). Again, the quality of
the work done by those who consider themselves tax preparers
may be in question. Tax preparers complete tax returns for
individuals or small businesses but do not necessarily have
the educational background or experience with the varied
responsibilities of an accredited accountant. In the year
2000, 69,000 people were employed or self-employed as tax
preparers (Occupational 595). The most significant source
of training for these individuals is moderate-term
on-the-job training.

Currently Available Training and Accreditation Programs
Local tax preparing agencies such as H & R Block do require
a training program for employees. Trainees must pass a
basic, 66-hour initial course. Each subsequent year, they
are required to pass a 24-to 30-hour continuing education
training class. Most of the storefront tax chains, such as
Jackson Hewitt and others offer similar minimum to moderate
levels of training for staff. "We have CPAs who come to take
our tax courses," according to Ms. Rayna. Usually CPAs are
trained in accounting but not necessarily tax laws. In the
courses, the material starts out with simple concepts but
quickly gets harder. Enrollment declines as the class gets
more challenging. Not all trainees complete the course.
These classes cover tax laws and tax preparation. H & R
Block is the biggest and most trusted tax preparation
business in the country, according to Money Magazine. H & R
Block is working towards a certification process where all
employees must earn the H & R Block certification.

When problems arise, there are penalties for filing
intentionally fraudulent claims ion order to get people more
refunds. Tax preparers are liable for fines and penalties
for false claims. Mrs. Rayna told me that the tax payer
must also pay any differences, plus interest if fraudulent
returns are discovered.

On the other hand, Mrs. Rayna told me that a national
program to certify tax preparers would not have a big
impact, according to some paid preparers. In firms with
training programs already set up, some employees do not feel
additional credentials are needed. The burden of
certification would immediately be passed on to consumers in
terms of higher fees. Preparers would charge more to cover
the costs incurred for the classes and/or testing.

Advantages of Professional Recognition
Professional recognition through certification or licensure
provides a distinct advantage in the job market. Most
accountant and auditor positions require at least a
bachelor's degree in accounting or a related field, and all
certified public accountants (CPAs) must have a certificate
issued by their state's Board of Accountancy. According to
the American Institute of Certified Public Accountants, 38
states require CPAs to complete an additional 30 hours of
college coursework beyond the usual 4-year degree
requirement. These licensure requirements have been adoped
through legislation, and those states that have not yet
passed such laws will be doing so in the future
(Occupational 22). Nearly all states also require a certain
number of hours of continuing education before licenses can
be renewed. Professional societies offer other forms of
credentials on a voluntary basis. Voluntary certification
can attest to specialized skills in a particular area, and
it can certify that a recognized level of professional
competence has been achieved. The Accreditation Council for
Accountancy and Taxation, a subdivision of the National
Society of Public Accountants, confers the designation of
Accredited Tax Preparer. Candidates must complete required
coursework and pass an exam in order to earn this
credential. The National Association of Enrolled Agents in
Maryland lists names of financial and tax professionals who
have completed coursework and taken a test to be certified
by that organization (Jaffee 204) Enrolled agents are
under-recognized specialists who have passed a comprehensive
exam entitling them to represent clients before the IRS
(Jaffee 187). Continuing education is required in order to
retain the designation.

Recommendations
In addition to the technicalities of crunching the numbers,
a tax preparer should be held accountable for
confidentiality. Besides just avoiding the aggravation of
filling out the forms, clients should be able to feel
confident that personal information such as income,
investment results, medical bills, and more will be kept
securely within the boundaries of the preparer's office.
Customers have to find the right match of competence,
expertise, price, and integrity. Standardized certification
would elevate tax preparation from a part-time, seasonal job
to a career opportunity. Currently Accredited Tax Preparers
or Accredited Tax Advisors hold credentials that signify
they have completed a course offered by the College of
Financial Planning and have passed an exam. If legislation
were passed requiring credentials of this kind for all tax
preparers, consumers could be assured of a basic, uniform
level of competence for a job that is quite a bit more
involved that just processing paperwork. If compensation for
the preparer is involved, and he claims to have knowledge of
the federal tax laws, the person should have some
qualification. There should be a minimum level of knowledge
required for the different classifications of taxes being
filed. Certification could be at different levels, such as
being certified for individual tax returns, partnership
returns, corporate returns, and so forth. "Someone who just
does individual returns does not necessarily need to be
certified for corporate returns," according to Mr. Locher,
former tax preprarer. The client could then make a
decision on whether to use the same preparer for various
kinds of tax needs, based on the preparer's credentials.

Conclusion
More complex requirements for accountants and auditors will
arise in the future from changes in legislation
(Occupational 24). It is likely that an accreditation
system for tax preparers will be a trend in the future
(Occupational 23).

By nationalizing an agency that oversees the accreditation
of tax preparers, consumers would have more confidence in
their preparer. Taxpayers would have at least a minimum
assurance of competency when choosing a tax professional.
The procedure could involve a test such as the CPA exam,
which would certify that the preparers are adequately
familiar with the tax code.

Appendix A

Interview with Ms. A Rayna, employee of H & R Block of Urbana,
Illinois
Date: November 13, 2003

Q: A tax preparer should or should not be licensed?
A: They are not required to right now, but I think it is a good idea.
Q: What did you have to go through to become a tax preparer?
A; 66 hours of a basic class and then we do 24 to 30 hours each year,
in additional training.
Q: Do you have to go back into the classroom each year? What do you
do in there?
A: Tax laws and tax preparation.
Q: Do you know how long the tax code is?
A: REALLY BIG!
Q: How liable is an individual tax preparer when signing off and
having that income tax return be wrong?
A: As long it is not intentional or fraudulent, there is not a
problem with that. There are fines if it is prepared fraudulently, by
intention to get people more money.
Q: If they could prove it was intentional, then you're in trouble,
right?
A: Yes.
Q: Do you think there should be more liability, or less?
A: When we work for Block, they stand behind us. So anything that's
done in our office is stood behind by the company.
Q: If you were the one that filled out a return for a customer, and
they got audited, where would you be in terms of that customer?
A: We go on audits with clients. But not me personally – we have
specialized people that are familiar with that go on the audits.
They have been a lot more experienced.
Q: I read somewhere that H & R Block is the largest tax preparer in
the nation. Is that correct?
A: I would say so.
Q: If every tax preparer had to be licensed in some way, how would
that change your company?
A: We are already working towards the certification with our people.
I don't think it would have a big impact. We would have more people
in class!
Q: How would I benefit from coming to you to get my taxes done?
A: We are trained to look for overlooked items and our tax
preparation software is top of the line. We have studied all the in's
and out's. A lot of times we will find things you are entitled to
that you may not know you are entitled to.
Q: If you feel that they should have a stamp or a seal or a license
saying that a person is legally entitled to prepare taxes, why hasn't
it happened yet?
A: I don't think it's real good for people to do it at a kitchen
table, because they may not know what to do. We see a lot of
mistakes, even when people go to the library and get some help. For
simple ones, it may not be a big deal, but for the more complicated
ones…
Q: What can a CPA do that you can't?
A: Usually CPA's are more accounting trained. They are not
necessarily tax law trained. We do get CPAs who come here and take
our tax course, to get the tax knowledge.
Q: Is it hard to be a tax preparer?
A: Sometimes.
Q: Was the school difficult?
A: It's a tough class. We had, this past year, we had a few drop.
We start out simple and build. Especially people who have other jobs
have a hard time getting all the homework done and attending class.
Q: So you feel there should be a certification process?
A: Uh huh, yes.
Q: Should there be more liability on a tax preparer?
A: No, I don't think so. We have to deal with what people tell us.
If they say they drove this many miles, we have to go on what they
tell us. There are fines and stuff set up for people that continually
put bogus information on returns. These things are under the penalties
of purgery.
Q: What would happen to the individual who paid you money, is the tax
payer still liable?
A: Yeah.
Q: Would an individual get in more or less trouble than the tax
preparer if a mistake is made?
A: The whole thing is based on fraud. But mistakes are going to
happen. At H & R Block, if we make a mistake on a return and it ends
up costing the taxpayer, H & R Block always pays the penalty and
interest. If it's our error, we pay for it.
Q: Thank you. I really appreciate this.

[new page]

Appendix B
Interview with Mr. Jim Locher, former tax preparer for Farm
Business/Farm Management with the University of Illinois and current
controller for Golden Harvest Seed Company
Date: Nov. 14, 2003
Q: What is your current job?
A: I am now a controller for a seed company.
Q: How much does that have to do with taxes?
A: Actually, we do not do a lot of taxes ourselves, but I used to do
taxes for individuals when I worked at the University. We hire out
the tax function. We prepare the paperwork, and they fill out the
forms.
Q: So you use a tax preparer?
A: Yes. It's the same firm that does our audits. That same
information is passed to the tax department.
Q: Do you think a tax preparer should be licensed?
A: It depends on whether there is compensation involved. For
instance, I prepare my parents' taxes, but I don't have to sign off on
that. But for people getting paid for it, they probably should. It's
a consumer safeguard, because if you walk in to somebody and someone
holds themselves out to have knowledge of the federal tax laws and
they don't, it can cause problems for the tax payer.
Q: Is there liability for a tax preparer?
A: There is no liability unless it's flagrant negligence. And then
it would have to be brought by the tax payer to the attention of the
IRS. I'm saying there should not necessarily be more liability, but
there should be a certain level of knowledge that the tax preparer
meets. You could be certified at different levels. Like for a trust
or estate tax or for individual. Someone who is doing individual
taxes does not need to be certified for a corporate return. Then if I
went to you and saw you were certified for only individual taxes, I
would be taking my chances letting you do my corporate return. You
still have to be careful of dishonest tax payers who supply false
information. I'm not saying there should be more liability; I'm
saying there should be a certification process. The burden of
certification would be passed to the consumer, in terms of the cost of
the classes and so forth. On the other hand, there is value received
there.
Q: Thank you for answering my questions.

Work Cited
Shales, Amity. The Greedy Hand. New York: Random House, 1999.
Jaffe, Charles A. The Right Way to Hire Financial Help. Massachusetts:
The MIT Press, 1998.
Occupational Outlook Handbook. Washington, DC: U.S. Printing Office,
2002
Bragg, Steven M. Accounting Best Practices. New York: John Wiley &
Sons, Inc, 2001
Garcia, Erica. "Checking up on the IRS: Money Tested the IRS Agents
who help you file your taxes. They did well - - sometimes". Money
Magazine 1 May 2002.
Caplin, Joan "6 mistakes even the pros make" Money Magazine 1 March
1998.
Trich, Teresa "Odds are, your tax preparer Doesn't grasp the law".
Money Magazine 1 March 1996
Masselli, John J. "Tax Preparers: whose side are they on?" The
National Public Account 1996: 2 pars. Abstract. 23 Nov. 2003
<http://www.
"Choose your tax preparer carefully." USA TODAY 23 Nov. 2003

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Will Eckenstein <weckenste[at]stu.parkland.edu> wrote:

- quote -

The problems I see with a universal licensing requirement
are that:

1) Much of tax preparation is NOT "rocket science," and

2) The costs of maintaining such a program will have to
be borne by SOMEONE.

There would no doubt be much debate as to WHO should pay for
such programs. For example, should the entire cost be borne
by the licensees??? Or should some of the cost be absorbed
by "the people" (state governments) on the theory that
consumers are benefited generally???

Next you get into budgetary game-playing in the state
legislatures. For example, in my state the legislature is
just ~thrilled~ to see state agencies (such as my licensor,
the Board of Accountancy) generate revenue by imposing all
sorts of fees on things. However, the legislature believes
(can you believe this...) that such moneys belong to IT (the
state treasury), and NOT to the agency that raised the money
in the first place!!! So, the agency is then left to fight
tooth and nail to get at least ~some~ of the money back
through the budgetary process to actually pay for the
licensing and compliance programs in question.

So long as this mentality prevails in some or all of the 50
states, I don't think meaningful universal licensing of tax
preparers (or anyone else who isn't practicing some "life
threatening" craft) is likely to happen.

MTW

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weckenste[at]stu.parkland.edu says...

- quote -

California has such requirements.
Contact CTEC (California Tax Education Council).
Go to www.ctec.org and
www.ftb.ca.gov/professionals/index.html

Cliff
CA Tax Preparer

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Will Eckenstein wrote:

- quote -

I don't think you will find anyone on this site that will
disagree with certification and licensing of tax preparers.
In 1996, the California legislature amended the Business &
Professions Code to require certification and licensing for
paid preparers. Certain individuals were exempt. Such as:
individuals holding a current valid license issued by the CA
Board of Accountancy, any active member of the CA State Bar,
and Enrolled Agents.

You can find lots of good information at the website of the
California Tax Education Council, the licensing agent for
paid preparers in CA. http://www.ctec.org

--

Alan
http://taxtopics.net

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"Will Eckenstein" <weckenste[at]stu.parkland.edu> wrote

- quote -

It was mentioned in a CPE class earlier this year that there
was some legislation being tossed around in a Congressional
committee about that very subject. I don't know how you
would go about finding out about it.

--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net

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"Will Eckenstein" <weckenste[at]stu.parkland.edu> wrote

- quote -

CPA's, Tax Attornies, and Enrolled Agents are already
federally authorized tax preparers (FATP) per Circular 230.
However, Enrolled Agents are the only FATP's who have
taken an indepth tax examination (and not all have been
required to do so). So the issue is not simply initial
certification, but rather continuing professional
education (CPE).

Chain tax practices will probably support your thesis because
1) they simply need one certified supervisor per office and
2) it will make it more difficult for their uncertified
employees to start their own practices.

There is an awesome lobby of uncertified accountants in
every State, Commonwealth, and Territory of the United
States and they will fight your thesis as though you were
violating one of their birth rights.

After writing all of this, I ask "What is the problem?"
Is that anyone can claim to be a tax preparer? Is it
that there are tax preparers who fail to stay current on
the tax law via CPE? Or is it that tax preparers fail
to comply with Professional Standards for Tax Practice?

While I support your thesis, I suspect it represents an
incomplete solution.

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I'm a college student grathering reserch for my final paper.
My working thesis is "Individual tax preparers should be
certified in some way in order to prove competency and grant
individual taxpayersprotection from persons who fraudulently
claim to understand the tax code." Anyone who has thoughts,
feedback, or sugestions for resarch material, please
respond.

thank you,
Will Eckenstein
weckenste[at]stu.parkland.edu

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