HRBlock – Taxpayers Nightmare

HRBlock – Taxpayers Nightmare

@HRBlock – Taxpayers Nightmare continues. Well, we reached another filing deadline and everything should have proceeded smoothly..no such luck. I am sitting here at 3 AM putting the finishing touches on what is nothing short of a nightmare. The cause of the nightmare…none other than an unresponsive, incompetent tax preparer that seems incapable of following directions. [Note – this is being published today so we have a baseline to follow what happens.] The individual is:

  • Employed by H&R Block –
  • Labeled as an H&R Block “Master Tax Advisor”
  • Purportedly an Enrolled Agent

The combination of these credentials means that the individual [we can call them the “Tax Master”] as it sounds like a suitably honorific title.

  • Has at least 310 hours of H&R Block Training
  • Has passed the IRS Special Enrollment Exam
  • May or may not have graduated from high school or anything beyond it.
  • May or may not have any formal accounting education.

The issues in the situation that we were engaged to address on an urgent basis:

  • The Tax Master asserted that foreign taxes must be credited rather than taken as a deduction [the “FTC issue”].
  • Was provided with a Schedule K-1 from a limited liability company for an individual that was a General Manager of the LLC, stipulated as an active individual [would satisfy material participation under IRC Sec. 469], income was earnings from self-employment,
  • The Tax Master finally acknowledged the gross error with the FTC issue and revised the return draft returning it to our client but refusing to reflect the K-1 in the return.

Given the recent H&R Block invective that CPA’s don’t know much about income tax, or at least that is what their advertising states, we undertook to explain our view of the situation, the manner in which we believe the statute applied, and

Your lack of response to Mr. R’s numerous communications over the prior three weeks, and of my urgent letter today has created the need for immediate action our part. We haven’t heard back from you and as such have obtained directly from Mr. R to extend his return. You were expressly directed that you did not have permission to file anything without his express consent.

The income has been clearly identified as:

  • Income/loss from a trade or business under IRC Sec. 162 and not investment income/expense subject to IRC Sec. 212 limitations.
  • Mr. R is a general manager of the LLC and accordingly, the income/loss is not subject to the IRC Sec. 469 passive loss rules and is subject to IRC Sec. 1402 gross income self-employment characterization.
  • A quick review of the return makes it apparent that you are either ignorant with respect to the rules that were explained to you, or you are intentionally disregarding the statute and the underlying regulations to the detriment of Mr. R for several thousand dollars.
  • Further, the lack of inclusion of the US source loss will create a distortion in the absorption of Foreign Tax Credits under IRC Sec. 901.

It’s understandable given their rather limited and basic training, Enrolled Agents have limited tax knowledge. We have provided an explanation of the item and you have a Schedule K-1 which properly reflects the item. You are expressly granted the ability to rely upon our for purposes of avoiding penalties under IRC Sec. 6661 and thereunder. [Our letter is specifically intended to permit you to rely upon it as written advice which permits you to rely upon it using the standards provided in Circular 230, Sec. 10.37(b)]

You are further cautioned, that your failure to report the items and they have been explained might be construed as demonstrative of intentional disregard for the rule or reckless conduct which would subject you and H&R Block to possible penalties under IRC Sec. 6694(b)(2) which states:

(2) WILLFUL or reckless conduct – Conduct described in this paragraph is conduct by the tax return preparer which is—

(A)a willful attempt in any manner to understate the liability for tax on the return or claim, or(B)a reckless or intentional disregard of rules or regulations.

The imposition of an IRC Sec. 6694(b)(2) penalty mandates a referral of the practitioner and firm for review for possible professional sanctions under Circular 230 to the IRS Office of Professional Responsibility. If you aren’t aware of the function of the IRS Office of Professional Responsibility it serves in the oversight role for professional practice matters for attorneys, certified public accountants and those individuals who don’t possess the qualifications for the two professions that have passed the SEE exam and are included under the oversight of Circular 230 and OPR.

The potential consequences of a referral and sanction by OPR can be quite severe. We strongly urge you to carefully review the implications of your failure to properly reflect the information reported on the Schedule K-1 in Mr. R’s return.

I had an extended with our client with respect to all of the implications of the various actions in this matter. In the end, our client understands the issues and potential consequences. If the circumstances ultimately warrant it, we will draft a document which the taxpayer can use to initiate a formal to the Office of Professional Responsibility naming both the Tax Master and the H&R Block entity that employs them under Circular 230 Sec. 10.50.

If H&R Block truly believes that they are more highly skilled in dealing with income taxes than CPA’s that typically have perhaps TWENTY TIMES THE AMOUNT OF FORMAL EDUCATION, and NAEA believes that Enrolled Agents are “America’s Tax Experts” we are going take personal responsibility to see that they individually and and firms adhere to the identical rules that apply to CPA’s and attorneys.

I have written about this subject a number of times and proposed suggestions with respect to deal with it. [See  “EAs and Circular 230”    ]. If you are as frustrated with the on-going fraud, misrepresentation of skills and the manipulation of words in a money grab consider following my lead in undertaking appropriate action where appropriate and consistent with professional standards. If AICPA isn’t going to forcefully support us we are far from helpless.

Permit me to conclude by noting that I take great joy in seeing the analytics, where it is clear that this forum provides a force multiplier for sharing the documents which are linked to this one that H&R Block and NAEA are not happy with. If you share this view and are tired of the lying, please share the blog wide and the deep….a new conversation starts RIGHT NOW.

HRBlock - Taxpayers Nightmare
HRBlock – Taxpayers Nightmare

Finally, one of my favorites…..why Enrolled Agents are NOT professionals with some Yiddish Wisdom.

[1] Internal Revenue Service, Office of Professional Responsibility, SE: OPR, Room 7238/IR, 1111 Constitution Avenue NW, Washington, DC 20224, Fax Number (202) 317-6338

CPA Right Choice

Author: abizcannabis

Managing Director & CEO of integrated transactional financial advisory, tax, and technology consulting firm - aBIZinaBOX Inc New York, Chicago, and OaklandCPA.CITP.CISM.CGEIT.CGMAExpertise with: Alt. Investments/Private Equity, Real Estate, Professional Services, CA Cannabis, Tech Start-Ups and Distressed Assets/DebtTechnology Certifications including:Advanced & High Complexity Cloud Integrator AICPA PCPS, CAQ,, IMTA, CITP ISACA CGEIT, CISMState CPA Societies in California, Florida, Illinois, New York and TexasExpertise with Regulatory Compliance - US - HIPAA, FINRA, SEC Rule 17(a)(3)/(4), eDiscovery, FINCEN - EU- EBA, ESMA, EIOPA UK - BoE, PRA, FCA