It seems that the IRS’ on again off again love affair with the idea of certifying tax preparers is on again. Earlier this month, IRS Commish Doug Shulman announced a proposal that would require tax preparers be licensed and certified. The immediate feedback on the proposal has been mixed.
My colleagues at the ABA are, of course, backing the idea of such a proposal. The ABA has been actively supporting increased oversight of tax preparers since 2004.
Even before the ABA voiced their opinion on the matter, IRS Taxpayer Advocate Nina Olson has called for regulation of the tax preparation industry (her calls for action date to 2002). In her most recent report to Congress, Olson again called for increased oversight of tax preparers. She cited a 2006 “undercover” study by the Government Accountability Office (GAO) where auditors posing as taxpayers made 19 visits to several national tax preparation chains in a large metropolitan area. Errors were found on all 19 returns, some of which resulted in thousands of dollars of improper refund amounts. In more than half of the cases, the preparers advised that reporting certain income was unnecessary “because the IRS would have no way of knowing about it.”
A similar study conducted by the Treasury Inspector General for Tax Administration (TIGTA) found nearly identical results. TIGTA auditors targeted not only commercial chains but 16 small, independently owned tax return preparation offices, as well. More than half of the returns contained errors and more than a third of those mistakes were considered to be “willful or reckless.” All of the business returns were prepared inaccurately.
So it would follow that requiring additional training and education might help resolve these issues. Or maybe not. Two states have already implemented certification requirements: Oregon and California. The initial feedback is that the accuracy of the returns prepared in Oregon has increased. But California? Not so much. The accuracy of those returns has actually decreased. Does that mean that that certification doesn’t work… or is that just California?
Therein is the problem: will certification actually improve tax compliance and reduce fraud?
Even if it would, how could the IRS possibly regulate the industry? In 2007, there were nearly 138 million individual federal income tax returns filed. Sixty-one percent of those individual federal income tax returns — about 84 million — were completed by paid preparers.
And how would we pay for it? The IRS is already underfunded. And our economy is not exactly the ideal time to be adding to the budget. Implementing many of the ideas put forth by Olson and Shulman will cost tax dollars – and while the goal may be noble, are we really willing to pay additional tax dollars to protect our tax dollars?
As you can imagine, this topic is a hot one in the tax pro world. For more information, you can see my article in the Intelligencer (subscription required). And for some great commentary, see these posts:
The official IRS release on the proposal can be found here.
What do you think? A big yes or a big mess?
With revenues plummeting and federal aid in short supply, many states are scrambling to fill holes in their budgets. The easiest way to do it? Raise taxes.
At least ten states are considering major increases in the near future. They are:
- Arizona
- Connecticut
- Delaware
- Illinois
- Massachusetts
- Minnesota
- New Jersey
- Oregon
- Washington
- Wisconsin
Two states have already implemented significant increases: California and New York.
That means that at about a quarter of all states are raising taxes to meet budget shortfalls. If you take those that don’t have income taxes out of the equation, it’s closer to a third. The bad news is that number is expected to climb.
Adding to the income tax woes are shortages in sales tax revenue. Sales tax revenues are at their lowest in years, fueled by a general decline in the sales of taxable goods across the country. Some experts worry that increasing income taxes will only contribute to the drop in sales tax, creating even more problems.
It will be interesting to see what states follow… The number of federal mandates (like No Child Left Behind) has not decreased while funding for those programs has. Add that to increasing jobless claims and foreclosures (and those related costs) and many states will have bigger problems, not fewer. Is your state next?
It was a historic day on yesterday with the election of President Elect Barack Obama. It’s almost easy to forget that there were other elections and ballot issues to consider but voters in some states faced a laundry list of issues. Among those were several state tax measures, including:
In Arkansas: Voters supported an amendment to the Arkansas Constitution which, among things, eliminated a reference to the poll tax.
In Colorado: Voters said no on several tax measures, including a state sales tax increase. Amendment 58, which would end a property tax credit for Colorado’s oil and gas industry and boost severance tax revenue by $321 million a year – seven companies, including Chevron and Conoco each contributed $1 million towards the opposition campaign. Severance taxes are imposed on minerals extracted from the state, or “severed,” to compensate for nonrenewable resources.
In Florida: Voters defeated Amendment 8, which would have authorized counties to ask voters if they want to increase the sales tax for up to five years to aid the local community college. Voters approved Amendment 4, which would give conserved property a lower tax assessment; the amendment also eliminates property taxes on lands placed in a perpetual conservation easement.
In Louisiana: Voters said no to a bill that would dedicate additional state severance taxes to parishes (like counties) of origin (See Colorado above).
In Maine: Voters approved a measure vetoing a new tax on beer, wine and soft drinks, which would help finance a state health care program.
In Massachusetts: Voters rejected another measure that would have cut, and then eliminated, the state’s personal income tax. A similar measure was rejected in 2002.
In North Dakota: Voters rejected an income tax cut. Measure 2 would have cut income taxes in half and corporate income taxes by 15%.
In Nevada: Voters shot down an attempt by the Nevada Legislature to amend or repeal the sales and use tax without voter approval.
In Oklahoma: Voters overwhelmingly approved an exemption from personal property tax for injured veterans and veterans’ surviving spouses. Voters also approved a measure that would require a person or business to file an application in order to receive a property tax exemption.
In Oregon: Voters said yes to an exemption that required 50% voter turnout to pass property tax increase measures. Voters turned down a measure that would have allowed federal taxes paid to be deducted from Oregon taxable income.
(Note: Findings were based on local newspaper and media reports. If you have additional information, please share!)
