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Saturday, February 27, 2010

Amazing Disrespect for the Tax System and Fellow Taxpayers

A story this week in the Miami Herald tells an appalling story of two tax preparers who claimed bogus first-time homebuyer credits on client tax returns (Nirvi Shah, "Two Miami-Dade tax preparers accused of home buyer credit fraud," 2/23/10). An IRS review of 30 returns prepared by each, indicated that only 1 person qualified for the credit. There are many more returns that these preparers completed for clients that apparently the IRS has not yet examined. The Department of Justice is seeking an injunction to get them to stop preparing returns.

These types of stories are why the IRS is working on new rules to regulate all paid return preparers and why Congress tightened the first-time homebuyer credit when it renewed it last November. Now, taxpayers must attach the signed closing paperwork for the new home.

How do fraudulent preparers stay in business? Clearly, taxpayers do not know enough about the law to know that they are responsible for what is on their return. Apparently, some clients were told the credit was to help keep people out of foreclosure. That supports the dire need to regulate preparers. But, I'm afraid, such fraudsters will stay in business, tell lies to uninformed clients, and perhaps just not sign the returns.

What more can be done? A simpler tax system with fewer deductions, credits and exclusions would help. More people might then prepare their return or be willing to have the IRS prepare it for them as Senators Wyden and Gregg recently suggested in their new tax reform proposal. Also, consideration should always be given to ideas for new tax breaks as to whether they can be handled outside of the tax law. For example, there is no need for higher education tax credits because the government can just fold that expenditure into its Pell Grant and similar programs that already exist to serve families in need of assistance for higher education expenses.

Greater efforts are needed to educate taxpayers too. There should be a mandatory course in high school as well as questions on the high school exit exam, on the basics of one's tax paying obligations as well as other responsibilities and rights they have as citizens. The IRS should have tax reminder ads on popular websites and magazines.

What do you think?

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