Tax Preparer Education Still Valuable to People If The IRS Prepares Their Returns

October 20, 2011 by  Filed under: Taxes 

A rumor has circulated that the IRS might provide tax preparation services in the future. The idea may appear far-fetched for now, but the government is under pressure to develop novel ways of increasing tax revenue. IRS tax preparation has already become more highly regulated in 2011. Perhaps paying the IRS a fee for preparing a tax return is a potential future measure.

The idea has been floated at least as far back as 2006. This is when Senator Max Baucus, chairman of the finance committee, proposed a solution to “get rid of the middle man” in tax preparation. In the same year, Austan Goolsbee, former chairman of President Obama’s Council of Economic Advisers suggested that the IRS send a pre-filled tax form each year.

Somehow these proposals seem at odds with each other. That is, if the IRS sends tax forms that are already filled out, taxpayers still need professionals with tax preparer training to verify the accuracy. Pre-filled tax forms containing W-2 and 1099 information are certain to create inaccuracies. The IRS has no way to assess filing status, dependency exemptions, itemized deductions, or tax credits. These are the subjects that are so important to tax preparer education.

The government’s clear objective is collection of the so-called tax gap. This is the $345 billion dollar difference between what the IRS believes taxpayers owe each year and what is paid. Maybe the IRS expects that taxpayers will sign pre-filled tax forms and close the tax gap by overpaying as a result of failure to capture legitimate deductions.

The president of the Computer and Communications Industry Associations believes that IRS preparation of tax returns is “really just a convenient way to kiss your deductions and tax credits goodbye.” He is among many who have publicly stated that tax return preparation by IRS agents – or even just IRS computers – is a measure for increasing government tax collection by disguising it as taxpayer convenience.

Someone is likely to eventually realize that most understated income is a result of business or trade activity not reported on 1099s as well as deductions for ineligible business expenses. That explains the higher IRS examination rate of tax returns with Schedule C business interests. Practicing tax preparer ethics therefore appears most conducive to closing the tax gap.

Whatever changes to income tax collection arise in the future, tax preparer work is unlikely to shift entirely to the IRS. In fact, the knowledge of tax experts may command a premium if the IRS attempts to prepare tax returns.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for IRS tax preparation and tax professionals. Access to free questions for the tax preparer training is available on their website.

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