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Preparer regulation: prepare for a mess.

January 05, 2010

The IRS has come out with its long-threatened batch of new regulations for paid preparers. The plan will require preparers who are not CPAs, lawyers or enrolled agents to pass some sort of competency exam and to take 15 hours of CPE. Nothing good will come of this.

- It will drive market share to the big franchised preparers like H&R Block, Liberty Tax, and so on, as they will find ways to make sure that their people pass the perfunctory exam.

- It will be a compliance nightmare for little tax-prep shops. Anybody who has ever tried to get the IRS to straighten out an ID number error can imagine how hard it will be for a small preparer to get redress when the IRS computers eat the CPE filings.

- It will eventually apply to everyone. Sooner or later some CPA or lawyer will get in trouble, and the IRS will move to apply to them "the same standards we apply to H&R Block."

- The perfunctory CPE and competency tests won't significantly improve the quality of the work. It will just ensure that bogus deductions and credits will be claimed on returns prepared by IRS-approved cheaters.

- It will raise the prices to taxpayers and motivate more of them to do their own returns, which can hardly improve return accuracy.

The only sure way to improve tax compliance is to simplify the tax law and eliminate the most egregious opportunities to cheat, like refundable credits. Since that isn't going to happen, the IRS will saddle the innocent with paperwork that won't solve the problems.

The proposal has everyone talking:

TaxProf Blog
Kay Bell
William Perez
Russ Fox
Eva Rosenberg
Robert D Flach
Dan Meyer

I'll cover this more at Going Concern in the next day or so. UPDATE: my GC piece.

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Comments

Joe,

The recommendations are rather modest, don't you think?

Modest? Not nearly modest enough. The IRS isn't up to the tasks it already faces. Now they take on a major new regulatory initiative that they aren't equipped to manage. They have plenty to be modest about already.

Doesn't seem out of wack. Will weed out bad preparers. In Oregon we have had education and licensing requirements for ever or at least the 20 years I have been doing this. 80 class hours before sitting for the license test. 2 years under supervision. Another exam for consultant test and 30 hours continuing education every year. Massive scrutiny by Oregon Tax board and this still doesn't get weed some bad apples so I can imagine the rest of the country with no requirements.

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