Thursday, December 4, 2014


While I usually don’t follow the actions of Henry and Richard, other than to laugh gleefully at their many local government and court admonishments and penalty assessments for royally screwing their clients, the title of this post, which I came across via a “tweet” caught my eye –

The post is by Leslie Book, author of the FORBES.COM blog “Procedurally Taxing” 

(We seek to explain, explore and expose issues involving federal tax procedure).

Leslie starts out by telling us –

“Last week, William Cobb, the President and CEO of H&R Block, wrote to the Commissioner asking that the IRS implement changes to tax forms to make it more difficult for taxpayers to prepare their own returns claiming the earned income tax credit (EITC).”

My response to this is definitely the cynical response to which Leslie refers – “Cobb wants more taxpayers to come to the preparer behemoth”.

H&R Block only cares about H&R Block’s bottom line.  Cobb and his company could care less about what is good for the American taxpayer, evidenced by the many, many legal actions which I mentioned above, or what is good for the IRS and tax administration.

It is like the recent AICPA lawsuit to stop the IRS new voluntary AFSP program.  The AICPA cares only about its CPA members and their bottom lines, and could care less about the taxpaying public.  They filed the lawsuit for strictly selfish reasons, to reduce competition, but “cloaked” it in an alleged concern for taxpayers.

So here H&R makes a recommendation for strictly selfish reasons, but cloaks it in a concern for the IRS and proper tax administration.

What are we talking about?  The IRS wrote to the Commissioner of the IRS to say –

. . . the IRS will see immediate benefits if it seizes the opportunity to require all EITC taxpayers, including the more than 40% of taxpayers who self-prepare their returns, to submit additional eligibility information to the IRS.”

As Leslie points out –

Would Cobb’s proposal be good for Block? Of course, as placing more obstacles in the way of self-preparing returns makes it more likely that taxpayers will seek assistance from someone else.” 

Presumably in many cases the “someone else” will be Henry and Richard.

The basis of Leslie’s post is that just because this recommendation will put more money in the already loaded pockets of Henry and Richard does not necessarily mean it is a bad idea.

Here is what is a good idea for proper efficient and effective tax administration -  remove the Earned Income Credit, and all other government social welfare and other benefit programs, from the Tax Code.

Refundable tax credits, like those generated by the Earned Income Credit, the additional Child Tax Credit, and the earlier First Time Homebuyer Credit, are magnets for tax fraud.  Over the years it has been estimated that from 1/4 to 1/3 of all Earned Income Credit applications are erroneous or fraudulent.

I was interested to read that, according to Leslie –

“. . . the IRS’s ill-fated efforts to regulate unlicensed preparers through a mandatory education and testing program {the now-dead RTRP program that was shot down in Loving v IRS – rdf} stems in part from former Commissioner Shulman’s efforts to tackle refundable credit compliance problems.”

The correct way to tackle refundable credit compliance problems is to ban refundable tax credits!

Let me once again tell you what should be done, and why it should be done - 

The benefits provided by the Earned Income Tax Credit and the refundable Child Tax Credit should be distributed via existing federal welfare programs for Aid to Families with Dependent Children. The benefits provided by the education tax credits and deduction for tuition and fees should be distributed via existing federal programs for providing direct student financial aid. The benefits provided by the energy credit and other such personal and business credits should be distributed via Cash-For-Clunkers-like direct discount or rebate programs funded by the budget of the appropriate Cabinet department.

Distributing the benefits in this manner is much better than the current method for many reasons:

1. It would be easier for the government to verify that the recipient of the subsidy, discount or rebate actually qualified for the money, greatly reducing fraud. And tax preparers would no longer need to take on the added responsibility of becoming Social Workers and have to verify that a person qualifies for government benefits.

2. The qualifying individuals would get the money at the “point of purchase,” when it is really needed, and not have to go “out of pocket” up front and wait to be reimbursed when they file their tax return.

3. We would be able to calculate the true income tax burden of individuals. Many of the infamous “47%” would still be receiving government benefits, but it would not be done through the income tax system, so they would actually be paying federal income tax.

4. We could measure the true cost of education, housing, health, energy and welfare programs in the federal budget because benefit payments would be properly allocated to the appropriate departments.

My only “selfish” reason for making this recommendation is to reduce the agita and aggravation involved in preparing 1040s. 

But wait - what about the recommendation from Henry and Richard?

If we assume (and, unfortunately, it is a good assumption) that the Earned Income Credit will be around for a while, the Form 8867 (currently titled "Paid Preparer's Earned Income Credit Checklist") should be renamed "Claimant's Earned Income Credit Checklist" and completed, and separately signed, by the taxpayer(s) claiming the credit and NOT the tax preparer.  And the tax preparer should NOT have to view public and private records and independently verify and confirm that the claimant is entitled to the credit.

If that is what Mr Cobb has recommended to the IRS then it is a good idea.

Please - what do you think about all this?



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