I just got back from Alabama. I was representing a client before the Internal Revenue Service. I am going to tell you the story of this client, but change all the names of the real people involved. What you are about to read will be EYE OPENING for you.
Let’s open this article with a fact. There is really no oversight of tax preparers in the United States. Anyone can open a business to prepare tax returns for a fee. There is no license that you have to obtain. No competency exam that you have to pass, and no continuing education that you have to take every year to be a tax preparer. No educational requirements, no qualification that you have to meet to prepare tax returns for a fee. However, it gets worse…an unlicensed person can represent a client before the Internal Revenue Service on a tax return that they prepared, without the taxpayer present. They cannot agree or negotiate on the taxpayer’s behalf, but they can certainly go without the taxpayer to an audit conference, and discuss the tax return that they prepared. So anyone reading this article could open up a tax preparation business, prepare returns for a fee, and represent a client on the tax return that you prepared for a fee fee. I’ll let that sink in for a second…I am an Enrolled Agent. I am licensed by the Internal Revenue Service to represent taxpayer’s interests through all levels of the IRS, including United States Tax Court. I took a two day four part examination on tax law and ethics. I passed a rigorous background check, and I am required to take 30 hours of continuing professional education every year to keep my license active. I would charge more money to prepare your tax return and represent your interests before the Internal Revenue Service, then an unlicensed person might to do what you perceive to be the same thing. But that is a story for another day.
Today I want to tell you about the story of Raquel (name changed). Raquel lives in Mussel Shoals, Alabama. Her husband is a professional, and she is a housewife. In 2007 her daughter, Tina decides that she is going to open an Indian Restaurant in Mussel Shoals. Tina knows that Raquel has a lot of money saved. Raquel decides to give over $300,000 to Raquel to open this restaurant. Tina tries to run the restaurant alone, but a month into business, she asks her mother to come and help her run the restaurant. Raquel is a great mother and loves her kid, so she starts working six days a week in the restaurant.
You have to understand the small town of Mussel Shoals, Alabama for a second. Everyone, knows everyone. Raquel is originally from Los Angeles, and is not southern. The people in Mussel Shoals don’t really like outsiders very well. Especially those from LA. Raquel and Tina work really hard, but they end up losing all of the $300,000 that they invested in the restaurant, and have to close the doors.
Raquel and Tina have never been in business before, so they seek out an accountant. Not knowing the aforementioned licensing requirements at the beginning of this article, they hire an accountant to file their business and personal tax returns. William is an unlicensed accountant in Mussel Shoals, and he prepares the Federal and State of Alabama tax returns for the business, as well as Raquel and her husband’s tax returns. William makes up deductions that neither the business nor Raquel and her husband have. Raquel and her husband’s tax return gets examined for 2007. Raquel, still not knowing the licensing requirements hires William to represent them at the tax audit. The tax audit reveals that Raquel and her husband owe an additional $84,000 in taxes. 2007’s return was so poorly prepared that the IRS opens 2008’s return and examines that as well. The result of that audit is that they owe an additional $100,000 in tax for a total of $184,000 in taxes. William doesn’t tell Raquel of the outcome of the audit, and every time Raquel gets an IRS Notice she calls William, he tells her that he is taking care of it. Because, William is not licensed, he could not appeal the IRS’s audit findings, and William allows the case to close as unagreed. Six months later, the IRS exchanges this information with the State of Alabama, who audits 2007 – 2012. William represents Raquel and her husband at that audit as well. Raquel and her husband end up owing $75,000 to the State of Alabama. A few months later the Internal Revenue Service and the State of Alabama file tax liens against Raquel and her husband. Raquel and her husband end up losing their house to the State of Alabama to satisfy their tax lien. When the IRS files a tax lien against Raquel, I send her a letter offering her my services. In December I am engaged by Raquel to resolve the tax matter.
When I am retained, I look over the tax returns, and they are the worst prepared returns that I have ever seen. I have been in business for twenty years mind you, and I have seen some messes in my time, but this one is the worse. There are deductions that are taken by the husband on the tax return that wouldn’t be possible because of the line of work he is in. William shows on their return expenses for a pension plan that Raquel never had, repairs and maintenance expenses that never happened, rent expenses for an office he didn’t have, and that was just the tip of the iceberg.
Being unfamiliar with how to represent a taxpayer before the IRS, William does not appeal the tax audits findings. He also doesn’t request a hearing from the Unites States Tax Court. He lets all of Raquel and her husband’s rights expire. By the time I get on the case, the only thing to do is try to resolve the tax debt. However, I have been doing this for so many years that I have a few tricks that I know. I immediately file an order to have the collections actions stopped against Raquel and her husband. When I was retained, the IRS was garnishing Raquel’s husband’s wages. Now, in the middle of this Raquel’s husband has a heart attack due to all of the stress that this was causing.
While the collections have been stopped, I order a copy of the audit report from the IRS, and go through it with a fine toothed comb to see if there is ANYTHING I could do to help her. I find that William didn’t argue two basic points that the IRS made, because he either didn’t know that they were wrong, or just didn’t care. All of my client’s rights as to appeals and Tax Court are gone, so I have two options. I can ask for something called an audit reconsideration, which has a 1 percent chance of being considered. Or, I can go to the Taxpayer Advocate, who is the police of the IRS, and beg them to get involved. I spend the better part of a week looking up the Internal Revenue Code and United States Tax Court cases, which support my position. I sit down for what turns out to be three hours and I make my case and ask for an audit reconsideration. I send the 15 page document to the IRS, and I wait. Six months later I get a call from the Huntsville Alabama office of the IRS letting me know that they will reconsider the case. I just got back from representing my client last week, and it looks good for Raquel. The point I am trying to make with this article is that if Raquel would have gone to someone that was licensed in the first place, none of this would have ever happened.
As it turns out, William is well known all throughout the IRS, in Alabama for not know what he is doing. The IRS has tried to get rid of him for years now, and the auditor asked me to complain, and I am going to. This man should NEVER prepare another tax return again.
When you are looking for an accountant, ask to see their license. When I met with Raquel the first time in person, I showed her mine. Do some due diligence on who you hire. You are looking for an Enrolled Agent, or a Certified Public Accountant that specializes in taxation. Look at your tax return before you sign it and send it. YOU ARE ULTIMATELY RESPONSIBLE FOR WHAT IS ON YOUR RETURN. If you don’t understand something, ASK. I spend a lot of time going over tax returns with my clients.
Don’t end up like Raquel. Be VERY careful who you hire to do your taxes, that is the moral to this story.
Craig W. Smalley, E.A., C.E.P.®, C.T.R.S.® is the managing partner of CWSEAPA®, LLP, which is a nationally recognized accounting, tax, and financial services company. CWSEAPA®, LLP is headquartered in Wilmington, Delaware, and has offices in Florida and Nevada. You can reach Craig by email at firstname.lastname@example.org, or you can visit him on the web at www.cwseapa.com.
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