One of the fun things about being a lawyer who prepares taxes is that people come to me either because they are having problems and they want me, as an attorney, to fix them or they had problems in the past, and they want me, as the tax preparer, to avoid these problems in the future. Without exception, the people who have had these problems all paid people to prepare their taxes, and the tax preparer did not sign or e-file their form. Now professional preparers, are required to e-file the return. The IRS assigns us special numbers to allow us to e-file and to identify us as the filer of each return.
I have found that the problems seem to fall into three areas. It is clear that the government is targeting earned income credit filers. Since tax preparers are now required to gather documents demonstrating that the child lives with the parent, it would appear that the enforcement effort for the earned income credit is made primarily against self prepared forms. This is unsurprising, as I have lost a few clients when I asked for the documentation. They told me that if I would not file without the documentation, then they would do the return themselves. It was pretty apparent that these people did not have the children living with them, so I did not file a return for them. My guess is that they found an unscrupulous person to do it for them. It should come as no surprise that people would bypass the tax preparers in order to commit fraud, so it should come as no surprise that the government is cracking down on “self prepared” tax payers who claimed the earned income credit. However, what I am seeing is that people are in a mess and their tax preparer is not helping them with the process.
Another area where we are seeing a lot of trouble is the “employee business expense”. In certain circumstances it is possible to deduct vehicle mileage, uniforms, and even some education expenses that are related to a person’s job. As the term “employee business expense” would suggest, these are relatively rare and usually quite small deductions. There are times when deducting mileage is appropriate. For example, I have a client who is a visiting nurse. All day long she travels from the home of one patient to another. Her employer does not reimburse her mileage. Claiming that mileage expense is appropriate. Also she goes from house to house wearing a uniform required by her employer. Costs associated with that uniform are also deductible. The cost of commuting between your home and place of employment is not deductible. I believe that my suits are my uniform. As a lawyer, I wear a suit to work everyday. The IRS will not allow me to deduct any clothing expense, so I do not. However, on the tax forms I have reviewed, people are deducting commuting miles, clothing expenses, and various education expenses that are simply not deductible. They are getting hammered for it. The “employee business expense” is a commonly abused item, and the government is well aware of that.
The third area where we are seeing problems is with numbers that are simply made up. I had a client come to me to prepare taxes who got audited by the IRS last year. She had a multi-family house. If the tax from she filed last year were true, it would mean that she was renting apartments for about $150.00 a month. She had expenses that were more in line with the fact that her rental income was much higher. Her tax preparer was able to show that she was losing a vast amount of money from her rental property, and thus prepared a return that showed she was getting a huge refund. However, it raised red flags at the IRS. She got audited, and she got burned. People need to look at the bottom of their 1040 forms and make sure that their preparers are putting their names on them. If not, then they simply should not be paying these people. If they are unwilling to put their name on the return, it is not because they are proud of their work. It is also not because they are planning to help you if you get into trouble.