Why do you get different tax answers? Good question. I don’t have a simple answer.
The Rule Book
It starts with the rule book and how it is written.
The federal tax code is about a zillion pages. I know that’s not a real number, but it is well into the tens of thousands. Often what is says in one place, it says something different on another page. Tax law is written by Congress and enforced by the Internal Revenue Service. The IRS breaks down the rules and turns them into forms, instructions, and procedures that are measurable and enforceable.
Often, Congress makes a lot of sudden changes at the end of the year after the election. Sometimes the Supreme Court makes a ruling and everything changes in one day. Sometimes the President makes a change. The IRS then scrambles to change every rule that the change might affect, and produce all new forms and instructions, and have them approved and ready for use in practically no time.
The IRS cannot foresee every exception, every particular application of the rules to every situation. This is why you can request a ruling or go to tax court to argue how the rules apply to your situation. It’s a murky, polluted, ever-changing sea of rules made by people that are not tax accountants. This is the first reason why there is a lot of misinformation that gets a lot of people confused.
People
The second reason is people. People are complex. Situations are complex. Sometimes the first look at something doesn’t show the whole picture. The IRS calls the whole picture the “facts and circumstances”.
If you went to a doctor and they said, “this scan shows you have X and you need Y treatment that might kill you,” would you take them at their word, or would you see another doctor for a second opinion? If you went to a lawyer and they believed you were guilty and said, “Boy, you are going away for a long time,” would you just believe them, or would you get an attorney who would fight for your innocence?
So, if your tax accountant told you, “Wow, you should have been filing as a partnership all these years and you need to re-file and pay all these penalties,” would you just believe them, or would you get a second opinion? You have to look at all the facts and circumstances in a situation. Your second opinion person always has more information to work with because they are looking for flaws in the first answer and will ask more questions. Second opinions are good things.
Experience
The third reason is experience. Who are you working with? What are their credentials? How many times have they handled this situation? ASK! Do you want your primary care doctor to try out brain surgery for the first time on you? Do you want a bankruptcy attorney to try out DWI defense on you for the first time? Then don’t expect someone who works for a tax franchise part-time to advise you on business structures.
I am never afraid to brag about ways that I have won against the IRS. I know what they will probably allow, how to phrase my questions to get the answer I want, and what to put in a letter when I ask for something. How do I know this? Experience. I’ve seen this situation many times. Also, it’s all in the IRS operations manual. It’s another zillion pages of rules that tell IRS employees how to do their job. There are no secrets or surprises. You just have to read a lot.
Research
When I need to know something, I look it up. I look up the code. Then, I look at the manual to see how it is enforced, then court rulings to see how it was applied. I see if it is part of the target audits that year, research the IRS and court sites, and I check industry publications to see if I come to the same conclusion. I research and study until I KNOW how to proceed.
A few years ago, I was invited to join a few social media groups for other tax experts. These were all people with educations and credentials and representing tax clients. I was shocked at the number of people that asked very simple questions and got yes or no answers from the group. No citations where to look it up, no encouragement to learn. Just gimme the answer. I tried to encourage people to study and learn and that apparently takes too much time. They just want the ‘right’ answer. Can I do this or not? A few times, I suggested asking questions to see if they would qualify under a completely different set of rules and was told “You can’t do that!” by group admins when it was something I had won and done several times before. Don’t tell me I can’t just because you don’t have the know-how.
I am no longer in any social media groups for tax professionals. I sincerely hope your tax professional doesn’t ask a social media group for answers without doing any research or applying ALL your facts and circumstances to your situation.
Licensure
Tax professionals are generally not regulated. Anyone can open a tax office and do taxes. Ou do not need any education or training. The IRS has two voluntary programs. First is the AFSP – Annual Filing Season Preparer, which requires passing a short course each year on preparing basic tax forms. Second is the Enrolled Agent. An Enrolled Agent is required to take a three-day complex test to show expertise in all areas of taxation and representation. Also required is 24 hours of tax classes every year. An Enrolled Agent can represent you in IRS and most state tax matters.
Does your tax person have a college degree in accounting? Are they an Enrolled Agent? A licensed CPA? Do they have any credentials at all? Or did they declare themselves a tax person? That can make a big difference in your answers.
Why Do I Get Different Tax Answers?
Laws are conflicting. Situations are complex. Research takes time and skill. If you have a complex tax situation, find someone with credentials to give you a second opinion before you believe the first thing you are told. Tax law is never black and white.
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