Institute Criticizes New Tax Preparation Licensing Requirements

October 8, 2010

The Institute for Justice, a public-interest law firm, has filed comments opposing the IRS’s proposed new licensing requirement for tax preparers. The IRS is holding a hearing on the proposed regs today, which include a $50 annual fee, 15 hours of continuing education each year, and a competency examination. Since attorneys and accountants are exempted from the regulations, it would serve to target small preparers:

Inexplicably, the proposed regulations exempt certain favored industry insiders. And the IRS wants to also exempt all attorneys and CPAs, regardless of whether individual attorneys and CPAs have any actual experience or qualifications in preparing tax returns.

But are most attorneys really that much better qualified to prepare your taxes? Absolutely not. Like me, most attorneys don’t have any special training or testing on tax law, let alone tax return preparation.

This scheme would disproportionately hurt small tax-return preparation businesses and independent preparers, many of whom may be forced out of business. Part-time and seasonal preparers – as well as those who specialize in assisting low-income or special-needs clients, such as those with language barriers – are likely to be hardest hit. By contrast, large, politically connected industry insiders will be able to easily absorb the licensing costs and, predictably, many are in favor of the scheme.

In 2009, tax-return preparers prepared approximately 87 million federal individual income-tax returns. The proposed licensing scheme, if passed, will likely result in a substantial increase in the cost of tax-return preparation services for individual taxpayers.

If your preparer does a bad job, you already have criminal and civil recourse against him or her. Perhaps it’s revealing too much to say that I don’t think any one person of any caliber can be fully qualified on all aspects of the tax code; there’s just too many provisions with weird rules. Smart tax preparers focus on what they can do well and rely on fellow preparers for oddities. Requiring everyone to be generally competent at everything is unrealistic.

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