In our quest to monitor changes in the tax profession, we were asked by a good friend, Lucien Gauther, Esq., if we would make an inquiry under the Freedom of Information Act to obtain information related to paid preparer penalties. If the reader is a tax preparer, then you know that the Internal Revenue Code Section 6694(a) and (b) penalties are at the bottom of any tax preparer’s wish list. The 6694(a) penalty is the less severe and involves unreasonable positions. The 6694(b) is the more severe and involves wilfull or reckless conduct, and could get you a referral to the Office of Professional Responsibility.
Well, how often do these penalties actually get assessed?
After considerable letters of delay, etc., our response from the Internal Revenue Service arrived today. One page.
They would only provide combined (a) and (b) penalties, and wouldn’t provide them to us based upon professional designation. For example, we originally requested to know how many penalties were assessed against Attorneys, CPA’s, Enrolled Agents, Registered Tax Return Preparers and Nonregistered Tax Return Preparers. They said “the IRS does not have a listing of paid preparer penalty assessments broken down in the categories requested.” With all respect, if you believe that the IRS doesn’t have this information, then 1) why are they trying so hard to regulate preparers who aren’t CPA’s or attorneys?, and 2) we have a bridge in Brooklyn perhaps we can interest you in.
For 2005, 406 penalties asserted ((a) and (b) penalties combined), the rest are as follows:
2006 – 738
2007 – 812
2008 – 954
2009 – 803
2010 – 835
2011 – 929
2012 – 889
Is there a trend? Well, the most paid preparer penalties ever assessed was in 2008 with 954. However, the average penalty assessments over the first four years (2005 through 2008) is 728, whereas the average preparer penalty assessments over the last four years (2009 through 2012) is 864. As such, the trend over the last eight years clearly shows paid preparer assessments are on the rise.
This practitioner continues to hope, however, that preparer penalties are being assessed by the IRS against those with patterns of behavior deserving of the penalty. The fear of this practitioner is that the IRS will use the paid preparer penalty as a sword against representatives they simply “don’t like” as opposed to objective applications of the law. This is a subjective analysis by the IRS, that can wreak havoc to competent yet zealous representatives simply because of the passionate advocacy of their clients, and not because of any inappropriate tax positions taken on a tax return. The appeal process would no doubt run its course and get to the truth, but an innocent preparer who is a strong advocate should not suffer retaliation for being good at what they do. Time will tell whether the paid preparer penalty assessments are monitoring tools, or simply disguised retaliatory swords.