Urge More Competent Preparers

Washington, DC (January 19, 2007)—In response to the new set of discussion options for closing the tax gap prepared by the non-partisan congressional Joint Committee on Taxation (JCT), the National Association of Enrolled Agents (NAEA) has submitted opinions on the proposals dealing with increased information reporting requirements that affect tax preparers. The tax gap, estimated at $345 billion per year, is the difference between taxes paid to the US government and taxes owed.

“Additional burdens on taxpayers and practitioners vary among the proposals, not necessarily in proportion to the amount of revenues likely to be recovered as a result of their enactment…We believe that it is important to balance burden with proportionate gains in compliance,” writes NAEA President Lois Manning, EA.

Among the comments from NAEA:

Reporting Requirements for Basis of Publicly-Traded Securities
NAEA generally supports this option that will shift some of the responsibility of basis calculation from the taxpayer to the broker because it would likely result in more accurate reporting of capital gains income and/or loss. However, NAEA believes that the taxpayer has the right to an explanation of how a basis was calculated and should be able to submit what he or she believes to be the correct figures, so long as a lawful method of alternate calculation is presented. 

Reporting Requirements for Real Estate Taxes
Third-party reporting of real estate taxes paid would lead to more accurate deducted amounts, NAEA writes. Caution is advised—a taxpayer’s home sale at any point in the calendar year may cause both inaccurate reporting and difficulty for IRS document matching programs.

Reporting Requirements for Proceeds of Auction Sales
NAEA notes that in 2005, eBay users sold $44.3 billion of merchandise, none of which was directly reported to the IRS on behalf of the individual sellers. NAEA supports additional reporting requirements in the belief that this would increase return accuracy and allow for IRS document matching.

Reporting Requirements for Mortgage Interest
Not all mortgage interest is deductible. The increased reporting of interest paid in connection with a refinancing should help practitioners and taxpayers determine which portions of interest are deductible and non-deductible.

Reporting Requirement for Individuals with an Interest in Offshore Bank Accounts and Offshore Trusts
A simple and painless way to increase compliance on this issue, NAEA writes, would be to continue using the check box currently located on Schedule B on Form 1040 and also allow the required Treasury Department form (reporting foreign bank and financial accounts, commonly called “FBAR”) to be sent along with Form 1040.

NAEA encourages the Finance Committee to consider another major contributor to the tax gap: incompetent preparation by unlicensed preparers, often resulting in large refund overclaims. By requiring a competence examination and continuing education for all tax preparers, Congress could bring more taxpayers into compliance by improving the accuracy of tax return preparation.

To view NAEA’s full comments on the JCT tax gap options, click here.

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