It Depends on the Meaning of the Word “Is” Is

I’m sure many of you remember this humorous interlude during the presidency of Bill Clinton:

Why do I bring this up? Because it goes to the heart of a question asked by fellow tax blogger Robert Flach.

Mr. Flach, who resides and practices in New Jersey, does not like the new IRS e-file mandate for tax professionals. He believes it does not apply to him. The new mandate requires that tax professionals who prepares more than 100 tax returns for 2010 or more than 10 for 2011. (Note that 2010 here means 2010 tax returns prepared in 2011, and 2011 means 2011 tax returns prepared in 2012.) The question comes down to a portion of the law that states, in part, “if (i) such return is filed by such tax preparer”.

Mr. Flach does not like commercial tax software. He considers software to be “…[P]otentially flawed and expensive….” He does e-file New Jersey returns today; New Jersey offers a free e-file solution on the state’s website. He prepares his returns using pencil and paper; he’s done it this way for decades and sees no reason to change. Today he asked whether his opinion of the law is correct (that is, the law provides an exception because he doesn’t file any returns but his own) or whether he’ll have to become an Electronic Return Originator (ERO) against his will.

There’s an interesting parallel in California. California has its own electronic filing requirement: Tax professionals in the Golden State who prepare 100 or more returns must electronically file all returns (unless the client opts-out or the return is not eligible for electronic filing). I fall under that requirement; there is no exception for hand-prepared returns. I haven’t read the statute, so I can’t tell if there’s any give or not. However, when the law passed I remember quite well the discussion at the Legislature; the intent was to force electronic filing for all returns. That’s the problem that Mr. Flach is going to face. It is quite clear that Congress’ intent was to force all tax professionals to file as many returns as possible electronically.

Mr. Flach will soon be forced to file all of his returns with a PTIN (if he does not do so already). Let’s assume that he files 400 returns in the 2010 season, all noting his PTIN, and that all of those returns are paper-filed. He’ll receive a letter from OPR (the Office of Professional Responsibility, the IRS’ enforcement arm for tax professionals) asking him why he didn’t comply with the law. He’ll respond that he’s exempt, and let’s assume the IRS disagrees. Mr. Flach will then find himself facing an administrative hearing. It’s likely he’ll lose; he’ll appeal and likely lose again. (Trying to win such a fight against the IRS at the administrative level would be difficult if not impossible.) Let’s further assume he then appeals the rulings to the court system.

The issue will boil down to legislative intent. I have not reviewed transcripts of Congress’ discussion of this legislation. It would not surprise me to find out that Congress’ intent was that all returns prepared by tax professionals be filed electronically. If that is the case then Mr. Flach will be facing a difficult fight.

That’s not to say that Mr. Flach can’t win. Technically, he’s likely correct that he does not have to file returns electronically. For him to win that fight would likely cost him tens of thousands of dollars in legal and court costs. Thus, from a practical standpoint it would be a Pyrrhic victory.

Unfortunately for Mr. Flach, this is one case where it’s fairly clear what the meaning of the word “is” is.


One Response to “It Depends on the Meaning of the Word “Is” Is”

  1. RF-

    Thanks for weighing in on this topic. Your comments on my posts are always welcome and appreciated.

    While I do believe that the law clearly states the requirement is placed on those who “file” returns, and I, nor any other tax professional, do not “file” any returns other than our own – I do not intend to ignore the mandate.

    I will not spend any money contesting the mandate in any court. I realize I must “play the game”.

    I have already contacted David Williams of the IRS regarding receiving an exemption from the requirement from the IRS (I have also asked David fo his comments on my post). If the exemption is not granted I will simply have my clients OPT OUT of electronic filing.

    As I mention in the post I am not against submitting returns electronically, and acknowledge that it is cheaper and more efficient for the IRS to have returns submitted electronically. You point out that I do submit NJ returns electronically when possible. I simply believe, as our colleague Joe Kristan has stated in his response to my post, that “the IRS shouldn’t require e-filing unless it provides a reliable and cheap mechanism for it”.

    Thanka again for answering my call for opinions.

    The Other RF