Uncovering “Tax Mills”

We’ve spoken quite a bit about the dark world of “tax mills” here on this blog and elsewhere in our outbound communications, for good reason — we don’t believe in taking advantage of those who need help the most.

We’re also in the early pre-launch phase and are looking for the right kinds of tax professionals to partner with, so we’re doing a lot of exploring — spelunking on Google, digging into qualified associations like the NAEA, and talking to a lot of people in the tax world.

Every once in a while, we come across an innocent enough sounding company name, and then the third natural search result links to a site like The Ripoff Report. This gives us pause. Particularly when there are ten to fifteen pages of links to complaints for a given tax provider.

I don’t know how often tax professionals like yourselves come across such companies in your daily lives, but of the many conversations I’ve had, most have a story or two (or ten) to tell. “Yes, I had this client who came to me two years ago… wanted “pennies on the dollar” for his $10,000 tax bill… I told him to pay the tax and get on with life, but he went to one of The Usual Suspects… he came back last month and still owes the tax bill plus penalties… and is out $10,000 extra for what he paid them…”

The age of social media makes uncovering shady companies a lot easier. Citizen Marketers aren’t shy about fingering people who have dealt with them poorly. The tools are out there (and easily found through a quick search on the engine of your choice).

Tax Professionals and Enforcement?

I attended a seminar two weeks ago here in Northern California. An interesting discussion came up on the subject of how the IRS is now fining tax professionals — not taxpayers — who submit returns with “frivolous” documentation. While this sounds good on paper, it raises a number of interesting questions.

Who determines if the deduction or expense is viable?

How much due diligence can be reasonably expected of a third party tax preparer with hundreds of clients?

What is reasonable to expect of a client who may or may not have full documentation to support deductions?

Is it the role of the tax professional to be the first line of enforcement?

I don’t believe the IRS thinks the tax professional community is supposed to be a surrogate police force, but I’m not sure — based on the conversations I had — that this feeling is universally shared by everyone who attended the meeting.

Here’s an open question to the community: how do you interpret this change? How are you dealing with it?

Regards.