A bipartisan group of lawmakers have introduced legislation that would increase the penalties on tax preparers who defraud taxpayers and the Internal Revenue Service by altering tax returns for personal benefit without their clients’ knowledge.
Erik Paulsen
The bill, known as the “Fighting Tax Fraud Act,” was introduced Tuesday by Rep. Erik Paulsen, R-Minn., who joined fellow members of the House Ways and Means Committee, Chairman Charles Boustany, R-La., ranking Democratic member John Lewis, D-Ga., and ranking member Jim McDermott, D-Wash., in sponsoring the bill. Paulsen referred to the bill during a subcommittee hearing devoted to identity theft and tax fraud (see IRS and Social Security Urged to Curb Tax Fraud and Identity Theft).
The bill would essentially double the current penalties for tax preparers who are involved with identity theft, with the goal of giving the IRS greater incentive to prosecute this type of theft. The legislation came from a recommendation from National Taxpayer Advocate Nina Olson.
“Taxpayers put good faith in the tax preparers who they hire to file their annual forms,” Paulsen said in a statement. “If a preparer willfully commits fraud against their client, and ultimately the government, they should be held responsible. This is a common-sense, good government measure that will cut down on the amount of waste, fraud and abuse in the federal tax system. I look forward to seeing this legislation move through the Ways & Means Committee and enacted into law.”
Paulsen hosted a seminar for senior citizens last week in Minnesota to give them advice on how to protect themselves against identity theft. He said in the hearing that it was a packed house. He also has co-sponsored legislation with Rep. Sam Johnson, R-Texas, to remove the Social Security number from Medicare ID cards as a way of protecting seniors against identity theft.
“Taxpayers who are defrauded by their tax preparers should not be left holding the bag,” said Lewis. “Today we are sending a strong message to tax preparers who defraud innocent taxpayers that the federal government will not tolerate fraud. This bill ensures that errant preparers will be met with increased penalties and heightened IRS enforcement. I am pleased that members of the Ways and Means Committee worked in a bipartisan fashion on this occasion to crack down on tax fraud.”
Olson pointed out during the hearing that it was necessary to increase the preparer penalties in order to obtain restitution.
“The IRS has seen many more of these schemes coming in involving return preparers that are filing tax returns after the taxpayer has approved the return,” said Olson. “They [the taxpayers] actually have a copy of what they think is going to be filed. The preparer alters the return in some way and then uses the split refund procedure to get the difference in the additional refund deposited into their account. The taxpayer doesn’t find out about this until much later. They get the refund that they are expecting, and it’s only when the IRS comes out trying to collect this erroneous refund from the taxpayer that they find out the return has been altered. We learned that to go after the preparer, you have some very low-dollar civil penalties that are really about negligence, and then you have a very expensive route to try to build a case to get to the Department of Justice to get restitution for the dollars that are lost to the public fisc. What we tried to propose was some kind of civil penalty that would really serve as restitution, that you could build the case that the preparer had in fact committed this act that was willful and fraudulent, and then the preparer would be 100 percent liable for the amount that was erroneously taken out. So it fills a gap in our ability to be able to recover what the public fisc is out, and it also heightens the risk to the preparer in engaging in this activity."
12 Comments
caltaxsd - that is very simple - don't use preparers that don't sign returns.
If they are honest they will honest preparation. If I went to someone who didn't sign and then expected cash - the hair on back of my neck would go up - wouldn't yours?
Posted by: Lenore | May 14, 2012 6:20 AM
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This is great for honest Taxpayers, but what about tax preparers who prepare taxes under-table and don't sign on the tax returns and get their fees cash, then leave the client to face all charges from IRS?
Posted by: caltaxsd | May 11, 2012 10:48 PM
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Instead of making more government regulations, more penalties and a bigger government, just stop the split-refunds and take the EIC away from the IRS and put it in with the proper welfare agency... You would probably solve 80% of tax return fraud overnight...
It's not rocket science, but it's probably above the thinking level of congress at the moment...
Posted by: taxking | May 9, 2012 6:40 PM
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Oh and one more thing - do away with the split refund. Do away with allowing H&R Block and others to give advance loans.
People need to realize yes it is a return of their money but stop counting on it to the point where you are willing to give away a percent of the refund for advancing funds!!!
While your at it - get rid of EIC. At least through taxes. This credit causes preparers grief with record keeping and due diligence and assists crooked taxpreparers AND taxpayers to commit fraud. It should be a separate assistance program monitored by other agencies. IRS has enough on it's plate.
Posted by: Lenore | May 9, 2012 3:46 PM
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I agree with all of these remarks. I want to be proud that I can stand up and show who I am and the work I perform on behalf of my clients. I only handle mom and pop stuff because they have such a hard time trying to keep up and still run their business.
I agree there is alot of work still needed with the e-file security.
Without a doubt there needs to be regulation of payroll companies. When the p/r company took the taxpayer money and then failed to forward - they should pay ALL fines etc. AND they should be much more regulated!!!
Maybe the IRS should send a followup letter to taxpayers stating exactly a recap of AGI and withholdings and end result. That way taxpayers could turn these companies in faster and more directly. Yes these people should be condemned and very loudly. Forget another or increased preparer penalties - PUT THEM IN JAIL.
Posted by: Lenore | May 9, 2012 3:20 PM
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I totally agree with Scarlett12's comments regarding oversight/regulation of payroll service providers. There have been numerous instances of payroll service providers taking payroll taxes from the customer and not paying the taxing authorities. I agree that there needs to be oversight and regulation of income tax return preparers and completely support requiring the registration and oversight of all income tax preparers and prosecuting any unethical prepapers. But there is a huge industry that ACTUALLY COLLECTS TRUST FUND TAXES FROM TAXPAYERS that is completely unregulated. How about it Congress and the IRS? These taxpayers need protection.
Posted by: CindyB | May 9, 2012 12:50 PM
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Bravo Sierra. Stop the silly split-refund process. Problem solved.
Posted by: EnrolledAgent | May 9, 2012 12:30 PM
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As a tax preparer who runs her practice with honesty and integrity, I am ecstatic that Congress is cracking down on unscrupulous tax preparers. It's about time they did something proactive. I can only see positives about this bill. A decreasing number of tax preparers + increasing demand = more opportunity for me! Bring it on Congress, and make it as tough as you possibly can.
Posted by: jasconsulting | May 9, 2012 11:45 AM
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Just what we need...another penalty on tax preparers. I'm sure this will stop it now! When are the 500+ people that run this country going to figure this out. The thieves that do this now, will continue to do this until the government comes up with a better way of collecting tax.
I'm all for the consumption tax, leaving the IRS to just have to go after the resellers, instead of the 138 million tax filers, of which 1/2 don't pay any income tax at all.
With identity theft as prevalent as it is today, I'd worry more about the e-file system, which appears to have numerous holes in its detection of fraud.
Sounds like politics to me. I wonder if Rep. Erik Paulsen is up for election this year?
Posted by: PAT | May 9, 2012 11:09 AM
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A complicated tax system where tax payers do not understand what is expected of them and cannot file their own returns; a tax system with self assessment of income and deductions, is just an opportunity for fraud.
A consumption tax, www.FairTax.org, will help eliminate a considerable amount of this fraud, broaden the tax base, and help us recover our economy. The bill is H.R. 25, read it for yourself.
Posted by: Taxpreparer | May 9, 2012 9:02 AM
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Anyone who steals from their client should be 100% responsible. What about all the payroll companies who failed to remit the payroll taxes they collected? There were many cases of this a few years ago. The IRS still wanted the money from the client! With interest! (I told them not to hire that payroll company.) Yes this type of theft is a disgrace to the profession. Let us also ensure due process along the way.
Posted by: Scarlett12 | May 9, 2012 8:52 AM
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I hope the bill passes and they add criminal charges to taxpreparers that alter tax returns. This is a disgrace to our profession. IRS should identify these individuals, bar them from practice, and publish their names in the IRS Website and local newspapers so the public know not to do business with these thieves.
Posted by: cromancpa | May 9, 2012 8:39 AM
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