March 06, 2013
Wednesday PM

It is pretty hard to miss these ads on TV, so I am sure most of you by now have seen the ongoing advertising wars between Turbotax and H&R Block being played out for your viewing pleasure since the first of the year.  H&R Block started with a group of rather bizarre dunderheads representing their so-called “tax professionals,” a pleasant enough, but odd looking gent in a yellow bow tie, a heavy set black guy with a somewhat stupefied and shocked look on his face, a little old lady who cackles as she brags about the 25,000 tax returns she has prepared (a near mathematical impossibility, I might add; my whole firm, for example, in more than 35 years has not prepared 25,000 income tax returns), and a glib, heavy set younger woman who smiles at us and declares that she has read all 900 pages (or is it 9000??) of something to do with Obamacare.  (To which my response would be, “and do you have a life??”  It is way too early to waste one-tenth that time reading regulatory language on that subject.)

Our so-called H&R Block “tax professionals” then go on to basically degrade everybody else out there who might think about preparing income tax returns, all those attorneys, accountants, and other tax chains who just could not conceivably get anything right, and so, “Hey, y’all bring in the last three years worth of tax returns, and we will find all the things that these other idiots missed, and we will make you money, money, money!!!” 

Turbotax responds with their ads selling their take-home and do it yourself software (a rather serious irritant to me, by the way, because Turbotax provides us with our professional software, then enters all of our markets and tries to steal all of our customers) which is supported by their marvelous support staff exclusively comprised of attorneys, certified public accountants, and enrolled agents (one might argue that basically they are offering us a bone as they seek to deprive us of our livelihood because they actually did have the gall to offer us these telephone jobs), and these ads are actually kind of cute.  First, there is the ditzy, blonde apparel salesperson who is also, “Aren’t you the one who prepared my tax return the other day?  I thought you were a real accountant?!?!,” the message, of course, being, hey, we have the real deal backing up our software; we have all these” licensed tax practitioners.”  Even more succinct, and thus more heavily played, is the plumber under the sink, “Aren’t you the guy who prepared my tax return the other day?”  To which the response is more or less, “Oh yeah, a few hours a week I’m a tax professional,” as the wife cringes in the background.  The message, of course, ultimately being Turbotax take-home and do it yourself software in combination with their support staff of “real experts” totally outclasses, outperforms, and even smells better than H&R Block’s (and by inference all the other chains) anyone can apply so-called “tax professionals,” who in fact really aren’t “professionals” at all.

And this last point flat sends H&R Block up the wall.  The ads this season are more interesting and more hilarious than the programming.  H&R antes up; again their talking heads, bow tie and black guy, et. al, “Hey all of you out there, bring what you did with your Turbotax take home and do it yourself software  down to good ole H&R, and we will check it for you for free.”   Always with the chains emphasis on “free.”

H&R is arrogant beyond cheeky, and is taking a very risky position with this last series of ads.  Understand how this targeted advertising campaign of theirs works.  These four characters who play their so-called “tax professionals” are actually cartoonish stereotypes of “ordinary folk,” folk like you, not those people upstairs in fancy offices.  They could be your buddy or your grandma; they are, once again, like you.  They speak “your” language, and so they are not speaking just to you, but for you.  Here also they might badly be missing their target.

Basically, what the ad series is saying is we “tax professionals” down here at H&R Block are better than the “licensed practitioners” employed by Turbotax that you can call for help, and so bring to us what you have prepared with your Turbotax product, and we will check it for you for free because these folks at Turbotax really can’t be trusted. 

The heat is really on here, and it is interesting to watch because these are major players in our industry having a hissy fit with each other about some very real stuff, and they are spending millions in advertising revenues with this very public snit.  I will in a few moments pinpoint for you the reality of what this is all about, because it is both interesting and important. 

Before that, however, the problem with H&R’s latest escalation is literally a question of who they are targeting, for while they are shooting their barbs at the Turbotax gang, or at least they are intending to do so, the user of the software, the dear old taxpayer and prospective customer, is getting shot full of holes, too.  Hey, you are such a dippo that you have to take what you prepared at home down to H&R for proofing, and that is rather insulting when you think about it.  So I think with this latest series of ads H&R has inadvertently perhaps ended up with too many targets.  “Perhaps” because it may also be the case that they really don’t give a damned about the customer; Turbotax is their target, and any collateral damage simply does not matter.

The oddity here, because H&R is definitely generally into quantity, is that H&R Block is not hesitant to degrade potential customers in its adamancy to eyeball poke Turbotax.  This is a very significant level of “nasty” going on here, and these folks are spending millions to do it.  That this is the ground these larger players have chosen certainly infers that the home software markets are very important to both of these outfits, which does not make all that much sense with a walk-in outfit like H&R unless they think something else is going on in the relatively near-term future, i.e. a broad movement toward dumping “licensed practitioners,” the purported “middle men” of the equation in favor of home use software packages augmented by some level of counseling or support.  Both Turbotax’s and H&R’s business models are fatally flawed in different ways, an interesting subject in itself but not the subject of this article.

The “licensed practitioner” is not a dead duck, nor is that going to occur at any time in the foreseeable future.  The “licensed practitioner” is not someone who goes down and gets a business license; that is not what a “licensed practitioner” is.  The term is limited to attorneys, enrolled agents, and certified public accountants, all of whom are by definition “licensed practitioners.”  This is a legal term recognized as such under Federal law and is limited exclusively to these three categories of individuals.  No one else is a “licensed practitioner,” and no one else can claim to be “licensed to practice before the Service.”  To gain this distinction requires in all instances a rigorous course of study and examination.  All of these categories can test out, but in almost all instances these individuals start with college degrees, and several of them locally have advanced degrees.  Upon completion of their education they attend advanced courses designed to prepare them for the required examinations, and those examinations are pure hell.  The percentage who pass those exams annually is very low; only 14 to 17 percent of those taking the EA exams passed when I was taking my exams, just to give you an example. 

I don’t keep an accurate count, but there about ten CPAs in private practice locally, most isolated in two firms, and two EAs in private practice locally.  I would guess there are probably about another ten or so CPAs employed locally by government entities and our larger businesses and industries. 

Since 1970 (and probably before) the average length of service locally for your individual “licensed practitioners” has exceeded 20 years, in many instances by quite a bit more than that.

“Tax professional,” by contrast, is an invented term that has absolutely no legal meaning whatsoever.  It is a euphemistic term used by individuals who are not “licensed practitioners” yet claim that they in some way and somehow are better than “licensed practitioners.”  Anyone can call themselves a “tax professional.”  If you want to declare yourself a “tax professional,” you are a “tax professional.”  If you are dyslexic and functionally illiterate, that does not matter.  Open an office, hang up your shingle, and call yourself the “tax professional” that you are.  A dyslexic will have an incredibly difficult time adding or subtracting a column of figures, and lack of reading skills will make it very difficult to even read regulatory language, let alone comprehend tax law; but if such an individual wanted to go into business as a self-declared “tax professional,” that is what he or she is.

It should be obvious, thereby, that the first fundamental difference between a “licensed practitioner” and a “tax professional” is that a “licensed practitioner” has measured up to a historical standard of performance determined by a series of rigorous entrance exams designed by their peers with the specific intent of keeping them out.  And to maintain that status you have to maintain those standards every damned day.  The “tax professional” has no standard to measure up to whatsoever.

So when you hear a guy in a yellow bow tie on TV say that he has been doing tax returns for 25 years as a “tax professional,” and this grandmotherly old dame has prepared no fewer than 25,000 tax returns as nothing more than a “tax professional,” the first thing I have to wonder is if they are immersed in this business to this extent why have they never become “licensed practitioners?”  I doubt the reason is positive. 

Turbotax may be competing directly against me, while concomitantly selling me product, but their advertising has the definitive advantage of being basically honest.  H&R Block’s advertising by contrast is anything but honest.  To start it is both inherently deceptive and degrading.  Basically, they know everything, and the rest of us are a bunch of ignorant schmucks.  In fact, the exact opposite is much closer to the truth.

And Turbotax has nailed them on that.  Turbotax’s telephone consultants are exclusively “licensed practitioners,” that is a requirement of the job; no one else need apply.  H&R Block will hire anyone and put them behind a table, and euphemistically refer to them as a “tax professional.”  It is a quantity over quality operation wherein the tax return is not even the main product.  In many instances they are more than happy to prepare your tax return for free, or they will give you $50, because tax preparation is not the main product.  The ancillary loan sharking services are the main product, and I can pretend to do a tax return for free if I am collecting $500 to $1500 from you for providing a service to you that the government provides in three to 14 days for no cost whatsoever. 

Nor be deceived by the notion, occasionally passed around, that there is no difference in what a “tax professional” as opposed to a “licensed practitioner” can do, or is authorized to do under the law, for that is in fact absolute nonsense.

An unlicensed tax preparer is authorized basically to do one thing only, and that is to prepare the paperwork required to prepare a tax return.  That’s it; nothing more.  You can sign powers of attorney, but they are meaningless documents, because lacking the right of representation, you cannot represent your client.  No one will talk to you.  A “tax professional” cannot represent his client at audit; he can appear at audit and answer questions about how the return was prepared, if asked by an IRS agent.  If not asked, he is not even authorized to talk on your behalf.  At all times the taxpayer has to be present.

A “licensed practitioner” can do all these things clear through tax court, and the client never has to be there.  All financial and administrative appeals.  Everything.  A “tax professional” can do none of it.

A “licensed practitioner” can discuss with you the past and the future, tax planning, forecasting, the effects of actions taken now on future tax years, new business plans, anything he or she wants to discuss with the client.  Not only can a so-called “tax professional” not do any of these things, if they are caught doing any one of these things just once, it is over for them.  Permanent suspension. 

So there is a very obvious difference between what a “licensed practitioner” and a “tax professional” can do, and what they are.  One has all their tickets punched, the other has none.  One can do everything, the other is limited to a single mundane clerical task. 

There are several unlicensed tax preparers presently operating in Ketchikan.  These comprise two chains, and a handful of individuals.  Despite their limited skills and competencies these are currently on average the most expensive places to go to get your taxes prepared.  Since 1970 there have been numerous unlicensed preparers operating in Ketchikan.  Since that time with the chain operations, out of numerous operators, one was an enrolled agent; thus over a period of 40 years the chains have provided Ketchikan with one “licensed practitioner.”  Where the “licensed practitioners” of Ketchikan since 1970 have individually averaged more than 20 years each in the saddle, the unlicensed preparers of Ketchikan average about four years before they close down, or a new owner/manager takes over. 

Price is high with the franchises because of two questions of motivation:  First these are franchised local branches of large, national corporations whose sole motivation is a very large bottom line primarily created by refund anticipation loans.  The franchise fees run something like 50% of the first $5000 gross and 30% of the gross thereafter, so the national outfit is raking off an incredible portion of the gross, which, of course, also explains in large measure the high turnover rate; the second motivational consideration is these outfits are all in it for the money.  They are not in it for the client.

Were they in it for the client the first thing they would be is “licensed practitioners,” because only thereby can they offer the full range of services honestly that their clients need.  Second, they would not be loan sharking their clients for any reason under the sun.  Exploiting one’s client as a mark whose refund you covet in whole or in part is as corrupt as you can get in this business because as an accountant it is your job to protect the financial well-being of your client in all instances.  These people do not begin to be motivated in that way.

Which is not to say that all “licensed practitioners” are saints.  In the past 50 years I can think of one case of embezzlement involving a CPA locally.  Martin Kapp, formerly an EA, and still a CPA licensed in California, has multiple Federal injunctions against him for promoting the tax scam know as the Mariners Deduction, considered by the IRS one of the top three ongoing tax scams, that involved many regional and local accounts. 

But the record for unlicensed preparers is far more dubious.  Elmer Pratt, who operated locally here in the mid-1970s, is such a legendary scam artist with the IRS that 20 years after he left here they still were seeking information about him.  Two characters insisted they knew more about tax work than the government did, and essentially re-invented the wheel to suit themselves.  The consequence was not at all good for dozens and dozens of local folks.  There is a repetitiveness here that while not quite so bad is redundant.

What brings this into focus at this time is this game of pushback between H&R Block and Turbotax that very specifically involves differentiating a “licensed practitioner” from the euphemistically termed “tax professional.”  The meaning of terms and words here is subtle, but important.  One represents substance, the other vapor.  H&R Block is seeking to add mass to that vapor by adamantly asserting what in fact is a false claim, at least to a degree.  There are “licensed practitioners” in substantial number that work for H&R Block.  But it is their “tax professionals” that they are emphasizing, and these constitute 90+% of their line workers; and Turbotax’s claim is correct; these seats are filled by some very inexperienced people with very limited qualifications.

Fifteen years and more ago now H&R Block was one of the primary lobbyists that convinced a conservative Congress to re-legalize the loan sharking of income tax refunds as part of the tax preparation process that had been outlawed in 1976.  The fact that this profession was made honorable at that time by this law was the key reason I chose this profession over other options.  Without that I would not have become a “licensed practitioner.”  So it will always be personal to me. 

The 2008 housing meltdown and the recesssion was in large measure the consequence of stupid tax policy.  Flipping personal residences for the sole purpose of making non-taxable profits is a game that every American who can play is going to try to play, and that is the perfect definition of what a bubble is; and all bubbles go boom.  Buying and selling income tax refunds as so-called “overnight refunds,” and always for a ridiculously high fee which is based on the amount of the refund, is likewise an invitation to piling on by fraudsters looking to make a loan sharking fast buck.  Add the earned income credit program and child tax credits into the mix, and low income families with children are frequently due $8000 to $10,000 in free money refunds from the government, clearly a loan shark’s paradise.  The incentive to cheat is paramount, and that has attracted some real flakes into this business.

So it is no surprise that the IRS estimates there is $5 billion of annual earned income credit fraud alone.

As consequence the government has responded by trying to get unlicensed tax preparers under control.  “Licensed practitioners” are already under control.  I owed the government $6.34 that I overlooked on a small penalty on my personal income tax, on the couple hundred bucks I owe in October when I file my extension after I do everybody else first.  So I get a call one early January morning from the Office of Professional Responsibility mildly chiding me that my ticket can be pulled for even such a slight offense. 

The Feds put a whole lot of effort into creating this “Registered Tax Return Preparer” program, RTRP for short (what else?), to control all these unlicensed preparers, and these new standards were quite strident with annual testing and all kinds of other things; and so three unlicensed tax preparers, generally rather highly educated hobbyists preparing a handful of returns at home, sued the IRS over this program and won, in what is known as the “Loving case,” having this RTRP program declared unconstitutional.  The IRS is appealing.  Ultimately, I am confident the government will get what they want, but it is temporarily and conditionally deferred.

H&R Block is feeling its oats basically, and feels confident it can get away for the time being with continuing to deceive the public about the true quality of its staff, its product, and the real non-meaning of the term “tax professional.”  Turbotax initiated its advertising campaign before the “Loving case” was decided; the new standards of the RTRP program all scheduled to come on line in 2013 would augment and reinforce the advertising message and the augmented product that Turbotax is trying to sell; but instead Turbotax got an unexpected fizzle, and no backup from the Feds in the form of multiple articles and ads explaining the ins and outs of the new standards and nomenclature to the consuming public.  Without the reinforcement of those other messages from other sources H&R’s advertising campaign is actually quite effective in completely blurring what it is Turbotax is trying to sell.

Thus you have what seems to be this crazy television advertising campaign burning through millions of dollars to eye poke each the other about something no one else even begins to understand.

But the unlicensed tax preparer, the euphemistically termed “tax professional” remains by previous law an individual who can do paperwork only, and futuristic discussion is grounds for permanent termination.  This is simplified today by the IRS with the required identification number, PTIN, that all preparers of tax returns must now have, and which the IRS can turn off in any individual instance by pretty much the flip of a switch.  Unlicensed tax preparers are, therefore, at your mercy about the time they open their mouth, and a call to the Office of Professional Responsibility will take care of business on that.  Just go to www.irs.gov, for all the information you need.  Lawyers are not required.

In closing I note one final thing.  As a “licensed practitioner” I do view unlicensed preparers as poachers, and I will not shake the hand of any loan shark.  The reason for that is I know that the people who have worked for decades in this town as “licensed practitioners” are concerned about their clients first.  Those who are not are concerned about themselves. 

David G. Hanger, EA, MBA
Ketchikan, AK

Received March 04, 2013 - Published March 06, 2013

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