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.

How We Got Here

Hi, I’m Tom Evans, President of TaxLifeboat.com.  TaxLifeboat is an expert knowledge website created to help taxpayers who are having trouble with the IRS.  We do this, in part, by partnering with tax professionals.  In simple terms, our website provides the tools to diagnose a tax problem, identify the most promising solutions and supply the user with all the resources to implement those solutions.  We’ve automated one of the most time-consuming, least-rewarding tasks that tax professionals face so they can either 1) recommend clients with this problem to us with confidence or 2) take on such cases themselves knowing we’ve done the research and assembled the materials for them.

That’s the service side of what we do.  There’s also a human side.  My business background and training includes systems analysis, decision theory, strategic planning, financial analysis, computer modeling, well you get the idea.  Note there’s an important word missing: Tax.  Yes, I’m president and I’m not a tax professional.  So how did I get here?  The answer is that some years ago I invested my time and money into a startup company.  Things didn’t go as we had expected which put me behind in my taxes and in trouble with the IRS.

I consulted with a tax professional, Terry Guy (now my current partner), on how to resolve the problem.  He explained about the Offer in Compromise program and soon I created a software analysis of how to qualify for it.  Terry mentioned that others could use this and about a year later I published a book and software program on OIC (see Amazon.com for Happy About Tax Relief, The Offer in Compromise Solution). 

In doing the research for the book I read many books and talked to numerous professionals about resolving tax problems.  I came to realize that there were many potential solutions, not just OIC.  I also concluded that taxpayers caught in this problem had very few good alternatives to seek help.  The “tax mills” were more interested in their fees than really helping the client.  Tax professionals (mostly) didn’t want the cases because they didn’t do enough of them to become proficient and, therefore, save time and lower the cost to their clients.  Likewise the IRS was of little help and one would have to read a lot of books just to find the one solution that would fit their situation.

So that’s why we started Tax Lifeboat and how we got here.  I’m proud to say that all the assistance we provide on the website to fully resolve a person’s tax problem costs less than one hour’s time with a tax attorney.  Yes, the full price is $199 and there are discounts for tax professionals who use our tools to help their clients.  Check it out at www.TaxLifeboat.com.