IRS Preparer Regulation Update

IRS Preparer Regulation Update

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My friend and fellow tax blogger Joe Kristan and I disagree on the wisdom of having the IRS regulate tax return preparers and have stated our positions on our respective blogs.

I am for regulation. Joe is against it.

Today, Joe succinctly states his position in a post titled Pushing Back at the IRS Preparer Regulation Plan:

Whether or not the Commissioner’s reach for power exceeds his grasp, the preparer rules are still a terrible idea. They’re likely to drive seasonal preparers out of business in droves, leaving the field to the big boys like H&R Block, whose former CEO drafted the proposals.

Prices for consumers will go up, driving consumers to underground preparers or do their own returns, which will hardly improve compliance.

I agree with Joe that IRS regulation of unenrolled tax preparers will force some tax preparers out of the business. Restricting  participation to those who have demonstrated a core level of competence and integrity is the primary purpose of any licensing regime. Any rise in the average price of services provided subsequent to the implementation of the regulatory scheme is merely a consequence and not an aim of that regulation.

I have made this analogy before and reiterate it here:

If doctors were not licensed and anyone could perform medical services for a fee, the average price of medical services would surely decline. That, however, is no argument for scrapping the licensing and regulation of doctors.

My view is that if the IRS preparer regulations are administered in such a way so as to prohibit incompetent or unscrupulous preparers from preparing tax returns for a fee, that will prove to be good for both the tax preparation industry and the tax paying public.

This “if,” however, appears to be a very big one for Joe who, I think it’s safe to say, objects to the IRS’s regulation of tax preparers not because he thinks all preparers are above reproach, but because he has little or no faith that a regulatory regime established and run by the IRS will be administered properly and effectively.

While I agree with the theory of regulating currently unregulated tax preparers, Joe may very well be right that it is unworkable in practice.

Here’s what Joe recommends the IRS do in lieu of regulation:

Far better [that regulation of preparers would be] to improve IRS data analysis capabilities to quickly identify patterns of non-compliance, like credit card companies monitor transactions for indicators of fraud. Better still to simplify our horrendous tax law so that fewer people need tax preparers in the first place. But that does nothing for H&R Block or the Commissioner’s power base.

These are good ideas and should be implemented with or without a regulatory regime.

Finally, I don’t share Joe’s cynical view that the tax preparer regulation regime is the product of a conspiracy between H&R Block and the federal government.

About Peter Pappas

Peter is a tax attorney and certified public acccountant with over 20 years experience helping taxpayers resolve their IRS and state tax problems.

He has represented thousands of taxpayers who have been experiencing difficulty dealing with the Internal Revenue Service or State tax officials.

He is a member of the American Association of Attorney-Certified Public Accountants, the Florida Bar Association and The Florida Institute of Certified Public Accountants and is admitted to practice before the United States Tax Court, the United States Supreme Court, U.S. District Courts - Middle District of Florida

Comments

  1. Peter,
    Great blog, you are on my daily reading list. I must, respectfully, take issue with your view that H&R and IRS aren’t involved in some kind of conspiracy. While conspiracy isn’t perhaps the best word, do you really think that the H&R people didn’t realize that this would benefit them? The entire progressive regulatory apparatus is replete with examples of industry using favorable regulations to benefit certain groups. Public Choice economics anyone? Thank you for your time. CA1

  2. CA1,

    Thanks for visiting.

    The fact that someone benefits from a particular governmental action doesn’t make that governmental action wrong. H&R Block probably will benefit from regulation. And so will CPAs, IRS Enrolled Agents and Tax Attorneys.

    To state that those who meet regulatory standards will be the benefactors of those regulatory standards is to state the obvious. But it tells us nothing about whether having regulatory standards is either good or bad.

  3. This regulation will impact a lot of small professional firms that do use a CPA for their annual tax return and pension return but prepare some federal returns in-house. Although the regulations exempt employees, a small firm may use a contract bookkeeper or accountant or agency for employment tax forms. Often the contract accountant handles a wide range of jobs including state tax reporting and is well qualified to prepare many forms such as Form 8300 when large amounts of cash are received. Is it really necessary for that firm to have to call their CPA to prepare Form 1099-MISC when the firm has been doing it’s informational reporting correctly for years? My opinion is that the regulations should have been limited to those entity income tax reporting forms such as Form 1040, 1120, 1065 where there is substantial abuse. Small business owners and their accountant or bookkeepers know when they need a professional tax preparer and will chafe at having to use one for something that does not justify the fee.

  4. Peter,
    Thanks for the reply and your post above in response to Maule was no less than brilliant. In my “public choice post” above I wasn’t giving any preference to whether the IRS proposals were beneficial or not. I only claimed that H&R knew what they were doing when the they helped draft them. Perhaps the new regs are more desirable. An imperfect analogy might be the FDIC. While it is certainly good that demand depositors have insurance against reckless behavior by a bank with their deposits, one might take the view that a bank shouldn’t be appropriating demand accounts for the banks benefit to begin with. Thus the insurance, while good in the limited sense, is moot and/or bad in the broad sense. Again, that response to Maule was brilliant. Progressives don’t believe in finite resources…or for that matter, finite anything. Everything can be molded by sheer will. Thanks for your time. CA1

  5. CA1,

    Thanks for visiting and thanks for the kind comments.