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Pushing back at the IRS preparer regulation plan

May 07, 2010

Not everybody was on board with IRS Commissioner Shulman's preparer regulation power grab at hearings held yesterday on the proposed rules. The IRS wants to impose a broad new preparer testing and CPE regime on preparers.

The American Institute of Certified Accountants said regulation beyond assigning preparer ID numbers is not needed:

While the proposed PTIN regulations do not address education and testing requirements that are another part of the IRS's plan, Thompson said any new IRS examination process should be delayed. "The AICPA believes that successful implementation of the new PTIN registration process, coupled with making all preparers subject to penalties and Circular 230 ethics standards, should be sufficient to address problems with unethical and incompetent tax return preparers."

Another speaker, a Georgetown law student Chaim Gordon, challenges the IRS authority to even issue testing and competency regulations:

In its Notice of Proposed Rulemaking, the Service asserted that the proposed regulations were authorized under I.R.C. §§ 6109 and 7805.3 Earlier, in its Return Preparer Review, the Service asserted that “the preparation of a tax return for compensation is a form of representation before the agency” under 31 U.S.C. § 330.4 As my written comments demonstrate, none of these statutory provisions can provide the Service statutory authority to regulate who may prepare tax returns.

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. Far better 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.

Related: Tax Preparers, Bootleggers and Baptists

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