The NAEA Won’t Like This Post

I’m a member of the National Association of Enrolled Agents. Generally, I’m supportive of their policies. However, I am not a fan of mandatory preparer regulation. Other than giving the IRS more money and getting rid of the lowest hanging of the bad preparers, preparer regulation won’t accomplish many positives for the general public. Unfortunately, the Senate is about to include preparer regulation in a bipartisan tax bill.

Joe Kristan noted this earlier today.

In June 2011, the IRS issued final regulations that established a new class of tax practitioners known as “registered tax return preparers” that it sought to regulate for the prepared by these now unregulated tax return preparers. There is substantial evidence indicating that incompetent and unethical tax return preparers are harming both their clients and the government. Most of the tax returns that involve refundable tax credits are prepared by unregulated tax return preparers.

Since 2011, the D.C. District Court (and the D.C. Circuit affirming on appeal) has prevented the IRS from enforcing these regulations on the grounds that the IRS’ authority to regulate practitioners is insufficient to permit regulation of tax return preparers who do not practice or represent taxpayers before an office of the Treasury Department.

The provision provides the Treasury Department and the IRS with the authority to regulate all aspects of Federal tax practice, including paid tax return preparers, and overrides the court decisions described above. [Joe’s emphasis]

So let’s consider what preparer regulation does:

1. “It stops identity theft.” Do you really think identity thieves will go away just because preparers are regulated? The TurboTax crew (thieves who buy TurboTax and prepare multiple phony returns) aren’t going away (until they get caught). And earlier this year the IRS itself contributed to identity theft.

2. “The IRS will now be able to put a stop to bad preparers.” Well, yes, but the IRS currently has means of going after bad preparers. They can get court orders, and they do.

3. “Bad preparers won’t register.” Preparer regulation will get rid of two classes of preparers: the lowest of the low-hanging bad preparers who can’t pass a multiple choice exam and preparers who either can’t afford to take the classes/exam or decide to retire and not deal with a bureaucracy. Look at who were plaintiffs in Loving v. IRS. The crooks who violate one law won’t care about violating another.

4. “The NAEA and the AICPA are for it, so it must be good.” Well, it will eliminate some competition, so it will increase the number of tax returns that will be prepared for members of both professional societies. Of course, what’s good for professional societies (and their members) will be bad for the general public; prices are certain to increase. Supply (of tax professionals will decrease), so price will increase.

The above are the most common arguments for regulation. None of them are, imho, persuasive. As Joe Kristan alluded to, the real winners will be H&R Block and other chains.

I’ve been asked by members of the NAEA why I’m against preparer regulation. All it does is increase a bureaucracy, decrease consumer choice, increase prices to the general public, and uses limited IRS resources instead of where they could be better used. I don’t mind competition, and the IRS currently has means of going after bad preparers.

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2 Responses to “The NAEA Won’t Like This Post”

  1. Greg says:

    While I am in favor of preparer regulation in general (because I’ve dealt with some really bad – inept bad, not criminally bad – preparers whose ineptitude causes serious problems for their clients), I also don’t agree with these arguments.

    You’re right – the criminals will still break the laws (and the easiest way is to prepare someone’s return, then check the ‘self-prepared’ box), so there’s no real crime prevention there. But I’m not sure it will benefit the H&R Puff ‘n’ Stuff’s of the world, either. Where JH and Liberty make their money is in cost – plenty of people want to have someone else do their return, but don’t want to pay very much for it – and in that regard their competition is Turbo Tax. H&R and other firms up the chain compete on price, but with a more sophisticated clientele, some of whom barely keep records despite their sophistication and wealth.

    The real problem is those who cut corners. As one of my old bosses liked to say: everyone is a tax cheat, it’s just a matter of degree. And the only way to fix that is to increase audits so that those who flout the law (such as married couples who file MFS and HoH, even though they’re not separated and are living together) are brought in line with those who, for better or worse, more or less follow it.

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