A NEW DEBATE BEGINS!

Here is my response to Peter Pappas' response to my response to his post.

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I am a self-taught tax professional who has been preparing 1040s manually since 1972.

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I did not learn tax law in school. My college credentials are based on "life experience" and were acquired solely to satisfy my family.

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On my first day working for my uncle's tax preparer in February of 1972, with no previous knowledge of taxes, my employer/mentor gave me a copy of a previous year's tax return and a suitcase filled with the 1971 information and told me to "jump in and swim". I learned how to prepare 1040s by preparing 1040s.

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I am not a CPA (although I did work for one of the then "big eight" CPA firms early in my career as a "para-professional") or an Enrolled Agent. I have no desire to audit financial statements and I do not wish to represent taxpayers before the IRS, although I will assist existing clients who are being audited. My practice is currently limited to 1040 preparation, although I still do a few corporate returns for long-time clients and friends.

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I do not file federal returns electronically because it is not free so to do (as it is with NJ state income tax returns, which I do file "electronically" online whenever possible).

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I based my comments in the post "Red Flags?" on my 37 years of personal experience in "the business" preparing 1040s for individuals in all walks of life.

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With the exception of Schedule C losses, I do not believe that the mere claiming of one of Pete's "red flags" will increase one's chances of an audit. I have claimed rental losses, employee business expenses, the home office deduction, charitable contributions, and Schedule C losses for thousands of clients over the years and have had to deal with only a minimal amount of office audits - I can count the number on the fingers of both hands.

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I do agree that if a return is chosen for audit these items may perhaps receive special attention. I also agree that these items are certainly areas where errors and tax fraud are likely to exist, and areas where unethical tax preparers, and taxpayers themselves, have, as I said, inflated or just plain made up deductions in the past.

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I agree with the following statement -

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"As a citizen, you have an obligation to the country's tax system, but you also have an obligation to yourself to know your rights under the law and possible tax deductions --and to claim every one of them." - Former IRS Commissioner Donald Alexander.

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I believe that if a taxpayer has truly incurred legitimate deductible expenses, regardless of the nature, he/she should claim these deductions in full. I also believe that taxpayers should keep detailed records of all deductible expenses so their arse is covered in the case of an audit.

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I do not believe that one should be scared off from claiming legitimate deductions for fear of being audited.

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I believe that Peter and I differ in our opinions based on our individual "points of view". I am a tax preparer. I prepare tax returns. Peter is a tax lawyer. Generally taxpayers contact a tax lawyer when they are in trouble with the IRS, and after they have been selected for audit or at various levels in the audit process. I have no doubt that Pete, in dealing with clients, has encountered more taxpayer problems with the items he has listed than with any other areas of income of deduction.

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I do not believe that Pete has any more access to internal IRS practices and procedures than I have. His comments are based solely on his personal assumptions.

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When I discuss tax preparation software in my post I am referring to a taxpayer preparing his/her own return using tax preparation software, not tax preparation software being used by a paid tax professional. I have said time and again that no tax preparation software is a substitute for knowledge of the Tax Code, and no tax preparation software is a substitute for a competent tax professional. My concern is with individuals with no tax knowledge thinking that they can prepare an accurate return simply by using boxed software.

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Most tax professionals who use tax preparation software have knowledge of the Tax Code and "know what they are doing". Yet at just about every tax seminar and workshop I attend someone has a complaint about how their software handled an issue and tells how they had to "force" the software to accept the correct answer or application of tax law.

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Using tax preparation software does not guarantee an accurate return, regardless of who is using it. A tax return generated by software is more likely to me "mathematically" correct but not necessarily more likely to be "tax law" correct. The basic law of software applies here - garbage in, garbage out.

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It is not, in my opinion, "reasonable, then, for the IRS to assume that a tax return that is prepared manually is more likely to contain errors than is one that is prepared by computer".

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I agree that "it is common knowledge that sloppy returns are more likely to be audited than neatly prepared" returns. For years I have been saying, "If the IRS can read the return they are less likely to question it". But who says all manually prepared returns are "sloppy". Pete has never seen my handwriting. My handwritten returns have been called "works of art" by both the IRS and other preparers.

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I certainly agree with Pete when he says, "the odds are better that a return will be accurately prepared by someone who has more training in tax law than by someone who has less training in tax law". Hey, it is a no-brainer. But I certainly do not agree with the statement, "CPAs tend (not an absolute, Robert) to be more qualified than non-CPAs in the accurate preparation of tax returns".

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I will say it again - the mere existence of the initials CPA after one's name does not necessarily imply that one has more training in tax law than a currently "nonenrolled" preparer. There are, to be sure, many excellent and competent tax preparers who happen to be CPAs. But, as I have said in a different post, "this is only because of the education, experience, ability, temperament, and other factors that are specific to that individual preparer and nothing whatsoever to do with their designation".

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I strongly doubt that "given the choice to audit one of two identical returns, one self-prepared or prepared by a non-licensed preparer, the other prepared by a licensed preparer, the IRS will always choose to audit the former." A return is selected for audit based on the numbers entered on the return and not who prepares the return, with the exception of those on an IRS list of questionable preparers that I discussed in the post.

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And, Pete, a CPA is not a "licensed tax preparer". A CPA is a licenced accountant, authorized to certify audits of financial statements. The only current "licensed tax preparer" is an Enrolled Agent.

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I do not think that an IRS review of a return that has been "kicked out" but the DIF scoring process gives anyone the "benefit of the doubt". If the numbers on a return warrant an audit then the return will be selected for audit, whether the return was prepared by a huge CPA firm or by "Joe's Neighborhood Tax Service".

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Peter agrees with me on the subject of licensing "unenrolled" tax preparers. If this practice did indeed exist I would certainly agree that it would be "more likely that a non-licensed preparer will make preparation errors than a licensed one." Unfortunately as it now stands competent, experienced and ethical "unenrolled" preparers are lumped together with the uneducated and unethical quacks and crooks.

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I stand by my comments in my post, and especially my "bottom line". Pete and I must "agree to disagree".

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And, Pete, as I have told Joe Kristan - I was not scared by a CPA as a child!

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I would be interested in hearing from other tax professionals - CPAs, EAs and "unenrolled" preparers - on this topic.

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TTFN