Consider the problem of Roger Ramirez, a tax return preparer who, throughout a three-year period, handled the tax returns of over a thousand taxpayers that, among other things, massively inflated or completely fabricated charitable contributions and unreimbursed employee business expenses.
Yes, Ramirez was ultimately caught and enjoined from further practice. But his story and the exploitation of taxpayers is, unfortunately, a regular phenomenon every tax season.
Indeed, thousands of tax return preparers systematically subvert the tax return filing process, rob the Treasury of revenue and undermine taxpayers’ faith in the system. The practices of Ramirez and other like-minded tax return preparers thus constitute a scourge on the tax system that Congress should immediately address.
By way of background, individual taxpayers submit well over 150 million tax returns annually. Due to the tax code’s complexities, taxpayers routinely turn to professionals for advice; most are steeped in knowledge and have strong moral compasses, while a minority do not.
Numbers here reveal a more complete picture. On the one hand, tax return preparers regulated by professional associations or the Treasury Department (e.g., accountants, lawyers and enrolled agents) are in the 300,000 range. On the other hand, unregulated tax return preparers are estimated to be in the 400,000 range.
When it comes to tax return preparation, many taxpayers typically turn to unregulated tax return preparers for advice. Why?
Unregulated tax return preparers ordinarily charge far less for their services than regulated ones, making them an attractive choice. Furthermore, some taxpayers, short on funds, are susceptible to being lured by promises made by errant tax return preparers that huge tax refunds await.
As such, oblivious to the charades being pulled on them or, in other cases, possibly willing to close a blind eye, they fall victim to rogue tax return preparers.
Congress has not been oblivious to this problem and has taken several measures to rein in derelict tax return preparer behavior. Such measures, for example, include levying civil penalties in the form of monetary fines upon those who advocate reporting positions that do not meet certain standards.
Actions such as these have met with marginal success, but stories like Ramirez’s still abound.
Since 2011, to curb such detrimental behavior, the Treasury Department required that all paid tax return preparers secure a Personal Tax Identification Number or PTIN and affix it to the returns they prepared.
The goal associated with the PTIN mandate was simple: It would place the Treasury Department in a strategically better position to identify wayward tax return preparers.
On paper, the PTIN mandate could put an end to those tax return preparers who strategically targeted low-income and other taxpayers to exploit. However, to avoid detection, wayward tax return preparers deliberately camouflage their actions by purposefully failing to affix their PTINs to their client’s tax returns, thereby earning the moniker “ghost preparers.”
There is an easy way for Congress to deter ghost preparers: In lieu of civil recourse resulting in monetary penalties (as is currently the case), Congress should criminalize the activities of those errant tax return preparers who repeatedly fail to affix their PTINs on the tax returns they prepare.
While this tactic may seem heavy-handed, given the fact that the nation’s most vulnerable taxpayers are at risk of being hoodwinked, the nation’s tax gap — or the difference between the amount of tax owed and the amount paid — hovers in the $700 billion range — and the $36 trillion national deficit threatens our nation’s solvency, Congress must take stern measures to galvanize tax compliance.
Admittedly, instituting the proposed reform measure will not solve the nation’s financial woes. However, criminalizing non-PTIN use by tax return preparers will yield many salutary effects, first and foremost, helping protect defenseless taxpayers from being preyed upon and safeguarding our nation’s coffers.
Jay A. Soled is a distinguished professor of Taxation at Rutgers Business School.
