Regulating Tax Preparers Always Prevents Tax Preparer Fraud (Not True, of Course)

I’m generally a supporter of the National Association of Enrolled Agents and its policies. However, I disagree with the idea that both the NAEA and the IRS have that regulating tax preparers will magically make preparer fraud go away. It’s just not true.

Yet another case in point comes out of the San Joaquin Valley in California. From the DOJ press release:

The United States filed a civil complaint asking a federal court in Fresno, Calif., to enjoin Ken Mendoza and Alice Mendoza from preparing federal tax returns for others, the Justice Department announced today. The complaint alleges that the Mendozas frequently prepare tax returns for individuals claiming refunds from the federal government that are not deserved. According to the complaint, since 2010, the Mendozas have prepared over 600 tax returns for individuals in the Fresno area.

According to the complaint, the Mendozas improperly understate their customers’ federal tax liabilities by fabricating business expenses, claiming false or inflated credits, particularly educational credits, and deducting customers’ personal expenses that are not legally deductible. In total, the complaint alleges that the loss to the U.S. Treasury from the Mendozas’ activities could be as much as $2.8 million for tax years 2010 through 2011.

California requires all tax professionals who are not EAs, CPAs, or attorneys to register with CTEC. If the IRS is right that regulating tax professionals stops tax preparer fraud, Mr. Mendoza wouldn’t be registered. The IRS’s view is just another fairy tale.

Mr. Mendoza is registered with CTEC (I checked). That means he went to some continuing education and regurgitated some basic information on taxes. Taking continuing education courses does not turn a good person into a bad person (or vice versa).

I’m hoping that cases such as these–and mind you, I do want the Bozo side of my profession to be gone–will put a stop to the idea that regulating tax professionals will magically make all tax professionals angels. Let me be blunt: Wherever there is money around, there will be bad people around. There will always be people going after the dishonest buck and nothing anyone says or does will ever change that.

I do want to point out the other point of this post for taxpayers who read this: You are responsible for your tax return. Read it. Ask questions if you don’t understand something. The Tax Code is complex, and there are things that seem obvious that aren’t on a tax return. If you have a good tax professional, he or she will want to answer your questions.

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4 Responses to “Regulating Tax Preparers Always Prevents Tax Preparer Fraud (Not True, of Course)”

  1. [...] Russ Fox, Regulating Tax Preparers Always Prevents Tax Preparer Fraud (Not True, of Course) [...]

  2. Gigi Campo says:

    CTEC agrees, regulation does not automatically stop tax preparer fraud. The above case is a good example of why CTEC is working harder to go after fraudulent registrants. SB 484 took effect this year giving CTEC the legislative authority to deny, suspend or revoke registrations from fraudulent CTEC-registered tax preparers. It is impossible to completely stop tax preparer fraud, but it is possible to curtail it.

    • Russ says:

      My issues with regulation are not with CTEC but with the IRS’s view that regulating tax professionals stops all tax preparer fraud. I’m glad to see you agree. I don’t want bad preparers n the business, and I absolutely want the IRS/DOJ/CTEC et. al. to go after them all.

      CTEC has done quite a bit of good in California, and when I have time (after April 15th) I’ll post about that.

  3. Gigi Campo says:

    Thank you! We look forward to reading more from you…

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