IRS Tax Preparer PIN Numbers Required; Power Grab or Necessary Regulation?

IRS Tax Preparer PIN Numbers Required; Power Grab or Necessary Regulation?

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DebateToday Joe Kristan blogged unhappily about what he calls the first phase of the IRS’s “power grab” over the tax preparation industry:

Many well-meaning folks support the Shulman power grab because “something must be done” about bad preparers. This shows a touching faith in the ability of government regulation to solve problems that has no support in recent history (Sarbanes-Oxley, meet Lehman Brothers). Instead the big industry players will capture the regulatory process — an ex-H&R Block official wrote the draft preparer rules for IRS — and use it to preserve their own position, stifle smaller competitors who lack corporate staffs to deal with regulations, and raise prices.

I am one of those well-meaning folks to whom Joe refers. However, I don’t favor regulation of tax preparers because I have great faith in the ability of government to solve all problems, only some problems.

Government agencies currently regulate CPAs, lawyers, engineers, Doctors and countless other professionals who provide services to the lay public. I don’t know what Joe’s position is on the regulation of these professionals, but must assume that he disfavors it based on his oft-stated reasons for opposing federal regulation of tax preparers.

On the other hand, if Joe doesn’t think we should cease the regulation of all professionals, we must ask him to explain what it is that is different about the tax preparer profession that should make it exempt from regulation and these other professions non-exempt?

One of those differences might be, as Joe says, that regulation may result in retaliatory actions by IRS employees against tax preparers who have publicly criticized the IRS:

I wonder: if a preparer has bad things to say about Doug Shulman on a blog, surely there’s no chance that the IRS will misfile that preparer’s paperwork and visit with an extra-special “tax compliance check,” is there?

There is, of course, always a possibility that a rogue IRS official will abuse his power and retaliate against a tax professional. But that possibility exists right now, even without tax preparer regulation. The truth is, the lack of regulation isn’t going to stop a corrupt government official from carrying out his corruption.

Finally, Joe agrees with fellow tax blogger and tax preparer Bruce McFarland (aka the Missouri Tax Guy) who says:

My peers and friends in the “field” say there won’t be that much extra cost, I say there will be enough cost to the preparer that this will undoubtedly raise preparer charges thus raising the cost to taxpayers who use paid preparers, we shall see.

I agree. Heightened regulation will raise tax return preparation prices. But who says increased prices are a bad thing?

The truth is, tax return preparation prices have historically been too low because of the lack of even a single barrier to entry into the profession.¹ The lack of standards artificially drives down price. That’s because a profession that has no standards is no profession at all, and its “members” are not entitled to charge a premium merely by claiming that it is one.²

Footnotes:

¹  Under the current unregulated regime, the only requirement for preparing tax returns is that one have a pulse. Tax preparers do not have to prove to anyone that they can read and write, that they can do simple math or that they lack a criminal record.

²  By way of analogy, if there were no licensing requirement for Doctors and anyone could call himself a Doctor, the price of a visit to the Doctor would decline precipitiously because, a) there would be a greater number of competitors in the field (increased supply drives prices down), and b) Doctors would have less overhead because they would no longer have to bear the burden of licensing and regulation costs.

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. “Tax return preparation prices have historically been too low”?? Tell that to some of my clients!!

    I think the real problem is that most tax preparers (both the big 3 and the do-your-return-for-$59 brigade) target the wrong groups of people, those who have relatively simple returns and who don’t really NEED specialized help. We have a tendency to price small business owners, people who have invested in mutual funds, and other people with complicated tax situations out of the market.

  2. NCTaxPro,

    LOL. The reason your clients think your prices are high is because there are too many incompetent, unregulated tax preparers undercutting you.

  3. Peter:

    Oh yes, I agree with that; I think the discount preparers set the expectations for the client base. But most of the discount tax preparers (at least in our area) simply refuse to do the more difficult returns – they’d go into shock if they had a day trader walk into their office!

    I still think most of us overcharge for supporting schedules, and we end up scaring people off who could really use our services. The small business owner with Schedule C income who has to pay SE tax can’t get a return done for under $300, and many of them don’t try, only to come to us later when they get a letter from the IRS.

  4. Why does the IRS need my pin number to give me my refund directly to my bank account?

  5. Mark,

    I’m not sure. My guess would be to guard against fraud.