We began our discussion of the topic last Wednesday when I wrote about how business returns are chosen. I followed that up on Friday with a column about how individual returns end up in examination.
Today we’ll talk about how the IRS monitors practitioners. You may not know it, but who you choose to sign your return has everything to do with whether or not you’ll be audited.
IRS Professional Regulation
Have you ever gone to an accountant to do your return where you sit down and they ask, ” How much money did you make last year?’
You answer, “I don’t know.”
They respond by saying, “Well, how much would you like to make?”
This type of preparer is what’s known in the trade as a Neighborhood Magician. They make money appear and disappear with the simple wave of a magic computer.
Please understand that if they maintain this lack of standards and do it for you, its easy to understand that they’ll do it for just about anyone. Sooner or later, given the reasons cited in my last two columns, a few of their returns are going to get audited.
If in those examinations, the auditor finds that the practitioner “aided in the perpetuation of a fraud”, then the auditor will refer the case to OPR or The IRS Office of Professional Regulation. That office will look at the evidence, and decide whether or not to take the case further.
If they decide to move forward, they’ll audit five more returns that the same practitioner completed that same year that have similar characteristics to the first one. If OPR then finds that the practitioner again helped people cheat on their taxes, two things will happen.
First – The practitioner will be sanctioned with fines, license suspensions, and possible jail time.
Second – OPR will then send out audit notices to all of the returns that the practitioner signed.
These two actions effectively put the bad practitioner out of business. But that’s normally just the beginning.
Crabbing
If that practitioner had any partners, then they’ll immediately be put under scrutiny with the same actions happening to them and their clients. This is the concept where “Birds of a feather flock together.”
The assumption is that the bad practitioner wasn’t a lone wolf and that there was a corporate culture in the firm of either being an outright tax cheat or of not having the proper standards of enforcing tax law. Since these sorts of things move sideways through organizational charts, this is what’s known as crabbing, given how crabs move.
In this phase of an OPR Investigation, clients are also looked at to see which other practitioners they might have chosen for their returns. The assumption is that if they went to one bad practitioner, that they would look for the same lax professional attitudes in the others that they had chosen.
Even if you had only gone to the first bad practitioner once, then the Service will probably go back a total of three years in auditing to see the others you had employed. And if they again find the same lack of professional standards, then the process goes on and on.
Let me leave you with this…
I cannot emphasize this enough. If you learn nothing more than this from me, your time reading will be well spent.
Choose your accountant wisely. If you look at the process of how the IRS goes after bad practitioners and shuts them down, it makes perfect sense.
Getting involved with anyone who doesn’t demand the proper evidence in completing a return would be your first clue. Being able to back up your deductions is a must.
Another one would be if they make suggestions that come out of left field that are extremely aggressive. These are the people that get caught.
And in being associated with them, you will probably get looked at as well.
Choose your accountant wisely.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
773-267-7500
888-310-0300
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Note that the only professional services provided by Accounting Solutions Ltd. are those specified in a written communication from our office detailing the scope of services to be rendered and the terms and conditions applicable to the engagement.