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Level playing fields?

June 26, 2009

Fine tax blogger Peter Pappas made this comment in his defense of proposals to license tax preparers:

I am merely suggesting that since CPAs, Tax Lawyers and IRS Enrolled Agents are heavily regulated (and by virtue of their education and continuing training are the least likely to engage in unscrupulous conduct) we ought to level the playing field and monitor the rest of the tax preparers, too.

The playing fields are bumpy already. While lawyers have to keep up a certain level of CPE and so on, that can be gamed. One of the most popular schools for lawyers in Iowa is the year-end bar association tax school held at the Marriot. It is popular because it provides lots of CLE in December, when the lawyers are running up against their deadline. It is also popular because it is broadcast closed-circuit in the hotel, so the lawyers can get their CLE without ever leaving their rooms. So the lawyers can do client work, or party, or sleep in, and still get their CLE. Most lawyers take their CPE seriously, but it would be astounding if everyone did. If lawyers can game CPE so easily, how hard could it be for a much larger cohort of licensed preparers?

In return for fulfilling their CPE obligations, the lawyers get a government-enforced monopoly on certain things. They get to draft partnership agreements, even if that really means blessing an agreement actually drafted by the CPA who actually understands the deal and the partnership rules. They get to do wills and contracts and so on. And with attorney-client privilege, they get to operate behind a veil that other preparers would kill for.

Meanwhile, CPAs have a monopoly of their own with the ability to bless audited financial statements. This naturally gives them an opportunity to get tax work ahead of other practitioners. They also get a brand name advantage from the "CPA" designation that drives other practitioners to distraction (in spite of the best efforts of some CPAs to wreck the brand). In other words, the playing field tilts both ways, if I may so butcher the metaphor.

It's in the interest of H&R Block and other private prepares to not screw up too badly; it's bad for business. It's not at all clear that creating an IRS preparer regulation bureaucracy will make things better. In this case, "making the playing field level" works a lot like "suppressing low-cost competition."

It is clear that licensing would cost millions of dollars that could be better used improving IRS information systems so they could spot suspect returns like the credit card companies spot suspect transactions.

Next week: is opposing regulation for others just another tool of CPA oppression?

Tags: Peter Pappas.Preparers.