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Preparer costs will increase some; taxpayer costs will increase more

August 21, 2010

Robert D Flach defends the IRS registration and examination process, and he poses the question:

I would like Joe, and others who feel the same way, to give me real specifics of how the new regulation regime will add substantial costs to a tax preparation practice.

I don't think I ever have said this will significantly increase preparer costs, though there will be an increase. Besides the $64.25, there will be time spent on dealing with the inevitable, and inevitably increasing, IRS paperwork. For those practitioners who get caught in the inevitable bureaucratic snafus when their registration or CPE records are lost in the system, there will be additional higher costs, but these will (one hopes) be limited to a relatively small subset of unlucky victims. For CPAs like me and attorneys who already meet CPE requirements, there will be time wasted on filing the same paperwork with a new agency, and, someday, on taking some pointless "competency" test. These will only increase with time, as regulatory agencies tend only to increase their own power and reach. But perhaps these don't rise to the level of "significant" costs to preparers.

More significant will be the costs borne by the taxpaying public. The additional costs and paperwork will lead many casual preparers to walk away from the business. This reduces the supply of preparers, while Congress does nothing but increase the demand. Reduced supply and increased demand means higher fees that will buy little increased quality. Quacks and charlatans will always find a way to stay in the system, and the "competency" testing will be perfunctory, or the system will fail entirely.

Rather than pay the increased costs, some taxpayers will stop getting help on their returns altogether and either self-prepare or drop out of the system. These dropouts certainly won't see improved service, though the regulators will never admit responsibility for that.

As Robert correctly notes, significantly better returns will only arrive when a better tax law does. The new regulations don't change that, so the preparer regime can't help much.

Yet once the regulatory system is in place, it will never be held to account. No matter how little evidence that the regulations are worth the cost, or how much evidence that they fail, the IRS will never admit failure, and the system will blunder on. Increased preparer regulation is a road that goes only one way. When preparer disasters happen under the regulated system -- and they will happen -- we will not be told that the money and effort spent on regulation was wasted, and that deregulation is in order. The prescribed answer to regulatory failure will always and only be more regulation.

Tags: preparer regulation.preparers.Robert D Flach.

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