Joe Kristan of Roth & Company (a CPA in Des Moines, Iowa, and proprietor of the Roth Tax Update Blog) noted the following this morning:

IRS preparer rules may create a catastrophic preparer shortage. A press release last week from the IRS urging preparers to take the new Registered Tax Return Preparer examination saves the real news until the end (my emphasis):
So far, there are more than 48,000 preparers who have earned RTRP certificates. There also has been an increase in the number of people taking the enrolled agent exam.

Starting Jan. 1, 2014, only registered tax return preparers, enrolled agents, CPAs and attorneys will be authorized to prepare and sign federal individual returns.

There are currently 739,000 tax preparers with 2012 PTINs. Approximately 350,000 of them are subject to the new testing and CE requirements.

It’s likely the population of authorized return preparers will crash. That will increase demand for the big national tax preparation franchises, which probably was the real goal the new regulations – written by a former president of H&R Block. A reduction in preparer supply will increase prices. It will cause some taxpayers on the margin to prepare their own returns, and some to stop filing altogether.

This sparked some interesting tweets on Twitter. (My twitter handle is @russcfox, btw.) Robert Flach asked whether the IRS would really force hundreds of thousands of tax professionals out of business; he’s hoping for ‘grandfathering’ of established tax professionals as RTRPs. Robert is subject to the RTRP requirements (he’s not an Enrolled Agent, CPA, or attorney). Jason Dinesen, an Enrolled Agent in Iowa, responded that he thinks the IRS will extend the deadline. Joe Kristan responded that the reduction in numbers is their goal. I then said, “The cynics are usually right when dealing with government.” I don’t expect grandfathering, I don’t expect an extension, and while I don’t think the IRS’ goal is a reduction in competition, I definitely think that’s an unstated goal of the regulations. Jason then noted that there would be fewer preparers for the IRS to regulate and less competition for H&R Block.

For Robert, the best hope is the lawsuit that was filed by the Institute for Justice and three tax preparers challenging the regulations. The IRS’ institutional mentality is for more regulations, not less. The RTRP program allows for more bureaucrats and a larger budget for the IRS–goals for any Washington government middle manager. The IRS won’t back down unless a court tells them to. I think the lawsuit has a decent chance: There’s nothing in the law stating that the IRS has the right to regulate every tax professional prior to preparing a return. (The IRS absolutely has the right under the law to seek injunctions against tax professionals who are committing fraud, etc. But that’s after a preparer prepares returns, not before he does so.)

I’m cynical about government. My cynicism is a result of seeing how government at all levels has acted since 1983. I remember in debate that anything we proposed would be, “a self-perpetuating program….” Somehow, the idea of a government for the people of a limited size and scope has been lost. Expecting the IRS to act any differently than anybody else in Washington would be shocking.