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Final version published in the National Taxpayer Advocate 2008 Annual Report to Congress (January,2009, Vol. II)

Abstract

The insights from the responsive regulation literature present an intriguing model for IRS interaction with preparers, and provide a theoretical context for a more nuanced approach that the IRS could adopt when considering its return preparer strategies. To some extent, the IRS’s current emphasis on preparer education, including the significant resources expended on tax forums and other general outreach programs, reflects IRS awareness that its interaction with preparers must take a varied approach. In this paper, I propose a more personal contact paradigm with preparers, with those contacts facilitated by heightened identification requirements and a more dedicated IRS effort to mine preparer data and direct targeted communication and efforts reflective of the data it will capture. The proposed approach will contribute to greater preparer visibility, responsibility and competence, and will ultimately allow for the IRS and preparers to genuinely work together to improve the accurate reporting of information on tax returns, and make it more difficult for preparers to pass on inaccurate information to the IRS.

A prerequisite for this type of approach is that the IRS must have sufficient information regarding who the good and who the bad actors are in the return preparation industry. There is a deep need for the IRS to collect information by type of preparer, and have a nuanced understanding of error rates by preparer and by issue, with a healthy dose of qualitative on the ground resources backstopping and contributing to understandings that the numbers suggest. Encouraging good behavior must start with the IRS knowing and acting on information about how certain preparers are interacting with taxpayers.

Changing preparer conduct through audits, heightened penalties, and the use of civil injunction proceedings should come only after the IRS encourages more positive steps, and only after the IRS directs disapproval with what it perceives to be improper preparer conduct.

Possible legislative change that would require registration and certification of preparers could also help facilitate effective oversight of the preparer community. This possible additional regulation could be the trigger for the IRS to meaningfully track information related to preparers and encourage better behavior, while at the same time keeping its powder dry for the egregious actors who need more traditional sanction-based approaches.

Disciplines

Taxation-Federal | Tax Law

Date of this Version

January 2009

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