THE TRUE MEANING OF THE LOVING CASE By David G. Hanger April 10, 2014 Consider this a lesson in how what you don’t know sometimes might hurt you. The Loving case, Loving vs the Commissioner (of the IRS), is not a case any layperson would be expected to follow, but it is a case all accountants have been watching closely. Concerned about the proliferation of unlicensed tax preparers and systemic fraud amounting to $500 billion a year, the IRS established the Registered Tax Return Preparer (RTRP) program, the intent of which was to regulate unlicensed tax preparers and to provide them with at least minimal educational requirements. From the standpoint of the licensed practitioner status was being given to these people that arguably they did not deserve. Licensed tax practitioners are a limited group. Only enrolled agents, certified public accountants, and attorneys are licensed tax practitioners. Virtually all of these people have college degrees, many have advanced degrees, while any fifth grader can become an unlicensed tax preparer or the more frequently used euphemistic term “tax professional.” What the IRS did was actually kind of crafty. They first established a new identification number that costs money (of course) and otherwise permits one to electronically file tax returns with the IRS. Almost all tax returns are now electronically filed, so the IRS established a radio dial that they can turn on or off in any individual case at their whim. Then they established educational standards and licensing standards that had to be met by any person who wanted to prepare tax returns, failure to comply resulting in the radio dial being turned off. For the first time, in effect, the consuming public could shop in the market knowing that the tax preparers available had at least maintained this minimal standard. This program was intended to go into effect in 2013. But instead Mr. Loving and two other unlicensed tax preparers sued the government, asserting that the IRS had no right to license them or to compel minimal educational standards and performance standards upon them. In District Court to the shock of many they won. Recently, the case was decided by the U.S. Circuit Court, and the Circuit Court essentially affirmed the decision of the District Court. Recent calls to the U.S. Congress to pass legislation regulating unlicensed tax preparers is the direct result of this event. This is not in any sense a victory for unlicensed tax preparers. What the Court said was that unlicensed tax preparers cannot be regulated because they have no rights of agency whatsoever before the government. Hence, there is nothing to regulate. That is about as stark as one can get. All an unlicensed tax preparer is, all any unlicensed tax preparer can be is a data entry clerk. They are permitted to be as uneducated, as unqualified, and as unlicensed as they want to be because they have no rights of representation or agency at all. That is the true meaning of the Loving Case. Unlicensed tax preparers have no standing before the government. None. What does this mean in fact, in reality? That for the layperson is the most important thing to understand. A “licensed tax practitioner” has the following rights and duties before the law and before society:
An unlicensed tax preparer or so-called “tax professional” has the following rights before the law and before society:
There are none. The only thing an unlicensed tax preparer is allowed to do before the law is to appear as a witness and to give testimony against you. “We will go to your audit with you and explain how & why we prepared your tax return the way we did,” was the old advertising mantra of a still existing major chain, one they moved away from a long time ago, probably when someone pointed out to them that they were basically admitting that all they could do was appear as a witness against you if the government wanted to talk to them. The IRS as often as not will simply ignore the presence of an unlicensed tax preparer at a field audit. As the Court duly noted they have no standing whatsoever before the government. This explains to some degree the inane ads you hear for such outfits as “TaxMasters.” “In trouble with the IRS?,” call these doinks somewhere off in Timbuktu, they’ll solve your problems for you. No unlicensed tax preparer can solve a problem with the IRS, no longer even a simple error notice. They have no rights of representation, so to fix even the simplest thing you will have to shop elsewhere. Get audited, “TaxMasters” will be glad to clean you out for 10 to 20 grand in fees. By contrast your licensed practitioners can do all these things as a simple matter of routine. No client in my firm pays for audit representation; that insurance is built into the bill; because a client being audited is a challenge to my work, far more than the client’s. I do not speak for all licensed practitioners when it comes to pricing, but I guarantee they all routinely resolve these matters themselves. In general terms, particularly here in Ketchikan, the unlicensed tax preparer can be identified by his or her reliance on revenue-generating products that are extracted directly from your refund. Among these are the following:
A couple other little tricks frequently used by unlicensed tax preparers to create a false illusion of gravitas that in fact none of them possess: Have all of their customers sign an IRS power of attorney at the time of preparation of the tax return. Ergo, they are your representative, but in fact this is all just bogus nonsense because the power of attorney cannot be used by an unlicensed practitioner for any kind of representational service before the government. This includes response to simple errors; and at the bottom of the tax return putting an ‘x’ in the ‘yes’ box of the question, Can the IRS consult the preparer of your tax return directly and without your prior knowledge? It is always inappropriate for someone else to be notified first (if not only) about a financial matter that concerns you. The only time that question is answered ‘yes’ is when someone is out of the country for several years, or something along that line. And a licensed practitioner is not going to prepare a power of attorney for anyone unless it is really necessary. (You wouldn’t believe the mail they generate.) I suppose to a lot of you young people out there we licensed practitioners are just a bunch of old fuddy-duddies who have no whistles and bells whatsoever as part of our service, yet the reality is all those whistles and bells are so much noise designed to distract you from the fact that an unlicensed tax preparer has no rights of agency or representation before the government at all, and that they have individually and collectively resisted conforming to even the most basic of educational standards of this profession that annually in this little hick town involves tens of millions of dollars of your money. The fact is the tax preparation business done right is a seemingly boring “brown bag” (and manila folder) operation, and done right that “brown bag” is full of your money, reduced only by the fee for the work. Our being mundane increases your opportunity to fly farther. But just for the record, the accountants in this town were among the very first to integrate the use of computers into their business operations, so maybe “early adapters” is a better perspective to have on them. Another thing to keep in mind is how modern advertising plays with you, the chains, for example, using national TV ads to create an illusion of stability that the evidence of the field does not in fact justify. The real stability in this town resides with your licensed tax practitioners who have been in business for decades. The chains by contrast change operators and owners with great frequency, and that despite high prices. There are numerous competent individuals, including in my employ, who are very good, albeit unlicensed tax preparers (in whole or in part); but as employees of licensed practitioners are in fact under the law a separate category from self-employed unlicensed tax preparers, and are not in any sense the subject matter of this article. The Loving case has determined that an unlicensed tax preparer can be as uneducated and as unqualified as he or she wants to be because it is too burdensome upon them to learn even the basics of this profession; that is what the Loving case said. But this is true only because they have no rights of representation or agency before the government whatsoever. I would certainly encourage all of you to ask the folks in Congress to regulate these unlicensed tax preparers who purportedly have caused as much as $500 billion in tax fraud, and brought unwanted attention on you (as a member of the middle class). In the market the choice has never been so stark. For a similar price you get full service, or no service at all. The choice is yours.
David G. Hanger, EA, MBA
Received April 01, 2014
- Published April 10, 2014 Viewpoints - Opinion Letters:
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