The IRS last week made available to the public a directory of certified tax preparation professionals in an effort to help taxpayers locate professionals who work in this area and verify their credibility. Taxpayers may search this directory by last name, location and credential type.
The directory lists all recognized Preparer Tax Identification Number (PTIN) holders. Professional tax preparers may apply for a PTIN with the Form W-12. To receive this credential, professional preparers must complete at least 16 hours of continuing education in their field. To maintain it, they must attend another two hours of professional ethics courses each year.
Many consider a PTIN the minimum requirement a tax filer seeking assistance should expect of a professional in this area. But importantly, a mention in the IRS’s directory does not directly equate to actuarial sainthood.
Chad Anthony Chertos and Gregory Edward VanDyke had a PTIN until a Michigan court injunction revoked it last year after both plead guilty to charges of conspiracy to defraud the federal government. The court also sentenced them to a collective 93 months in prison and almost $500,000 in restitution to the U.S. Treasury.
The duo enticed customers to sign blank tax return forms, which the defendants filled out with falsified income information and submitted to qualify customers for low-income tax credit programs. They used false return addresses on these forms to intercept the refund checks. Chertos and VanDyke accompanied clients to cash the refund checks and exacted their fee: typically between 30% and 50% of the refund.
This is one example of a species of crime the IRS identifies as “abusive return preparation.” See below for the IRS data on this particular infraction and the rate it which the IRS and the Department of Justice identify and prosecute it:
Statistical Data – Abusive Return Preparers
|Average Months to Serve||18||18||19||18||x||24||25||29||27||28|
Source: International Revenue Service. Criminal Investigation Management Information System (CIMIS).
The IRS reported an additional 19 sentencings of this type thus far in 2015.
To put these numbers in perspective, taxpayers filed more than 145 million individual income tax returns in 2013. About half paid a professional to help them prepare and submit those returns. The California Tax Education Council in 2013 estimated that “there are up to 5,000 tax preparers practicing illegally, possibly hundreds in the Bay Area alone,” according to San Jose Mercury News. Regulations on the tax preparation industry in California are tougher than those upheld in most other states.
Efforts by the IRS to regulate the tax preparation industry have in recent years met little success. The Service first introduced the PTIN system as a taxpayer security measure in 2011. A D.C. court in the 2014 Loving v. IRS decision ruled that the IRS does not have the right to regulate professional tax preparers at the federal level. This decision rendered attempts by the IRS to control the industry such as the PTIN system and directory purely prescriptive in nature.
Since Loving, the responsibility to regulate this industry falls solely to state governments. Regulations of this sort only exist in Oregon, New York, Maryland and California. This circumstance provides a semi-testable environment by which the efficacy of government regulation in this area can be monitored. Recent research by the Government Accountability Office (GAO) shows that in 2008, tax returns filed by paid preparers in Oregon
were 72 percent higher than the odds for a comparable return filed by a paid preparer in the rest of the country… The higher level of accuracy of Oregon’s tax returns compared to the rest of the country suggests that a robust regulatory regime involving paid preparer registration, qualifying education, testing, and continuing education may help facilitate improved tax compliance.
The American Institute of CPAs (AICPA) has fought this type of regulation and recently indicated that it will continue to do so despite the fact that their will prevailed in the Loving decision. AICPA in June of 2014 addressed a letter to IRS Commissioner John Koskinen in which they call the PTIN directory as it now exists “unlawful and improper.” The Institute in this letter further warns that the directory will “cause significant legal problems that may ultimately frustrate the IRS’s goals, confuse the public, and lead to litigation.”
PTIN or none, if you think your tax return preparer is involved in illegal activity, report them to the IRS with Form 14157.