CPA Joe Kristan, author of THE ROTH AND COMPANY TAX UPDATE BLOG, and I have been involved in an ongoing friendly but serious debate on the issue of regulating tax return preparers.
To recap - my entries in the debate have included –
REGULATION DOES NOT PREVENT FRAUD,
AND THE BEAT GOES ON, and
I WISH THEY WOULD EXPLAIN.
Joe’s return volleys were –
REGULATION DOESN’T WORK. LET’S REGULATE SOME MORE,
INSTITUTE FOR JUSTICE SPEAKS OUT ON IRS POWER GRAB,
FUNNY, YOU DON’T LOOK UNREGULATED, and
SUPPLY, DEMAND.
In addition, we both referred to THE IRS AND THE LATEST LICENSING OUTRAGE by Dan Alban.
I would like to provide my final (and I mean it) words on the subject, in response to the arguments put forth by Joe Kristan and others.
Joe’s case against the current regulation regime, which is shared by Dan Alban and others, is basically 2-fold:
(1) Tax return preparers are already regulated; and
(2) Regulation will create a seriously increased cost and workload burden on tax return preparers, causing many to leave the business, and result in a substantial increase in the cost of preparing 1040s.
Today I will respond to the first issue, and tomorrow I will finish by dealing with the second.
Joe rightfully states that there are already in place criminal and civil penalties for tax preparers who encourage or commit tax fraud and who encourage or take “frivilous” tax positions.
Just about any activity, enterprise, industry, or profession, whether regulated or not, is subject to criminal and civil penalty when fraud, or other “inappropriate” action, is involved. It is true that under current law and regulation a tax preparer, “enrolled” or not, can be penalized for attempting to defraud the government, just as an individual taxpayer can.
But the reason for regulating tax preparers, as with regulating any profession or industry, is not to be able to penalize members for bad behavior. The main purpose of regulation is consumer protection by establishing minimum standards of competence and currency.
The purpose of regulating tax preparers is to assure the general taxpaying public that a person who hangs out a shingle as a “professional tax preparer” actually knows his arse from a hole in the ground when it come to preparing 1040s, and remains current on the multiple annual changes to the Tax Code.
Professor Jim Maule of MAULED AGAIN has written an excellent and, as usual, scholarly post on the topic of tax return preparer regulation, mainly in response to Dan Alban’s commentary (referenced above).
While “Tax Return Preparer Regulation: What About Attorneys and CPAs?” is mostly concerned with the current exemption from testing and required CPE in federal taxation for CPAs and attorneys, in agreement with both Dan Alban and myself, he does touch on Dan’s, and Joe’s, argument that regulation is unnecessary because tax return preparers are already regulated.
“Tax return preparation is no different from any other industry whose participants have the power to help or hurt its clients or customers. Existing penalties are not preventing the unethical behavior of a few “bad” preparers whose actions end up tainting the entire industry’s reputation. Some taxpayers have been ill served by their tax return preparers, and “some” is too much. When one considers the various industries that are properly regulated, in every instance clients and customers are better off than they were before regulation, and when one considers the various industries that are not regulated or that are inadequately regulated, clients and customers end up on the short end of the deal. Aside from the ethical issues raised by preparers who file fraudulent returns, steal refund checks, or otherwise cheat their customers, the bigger issue is one of competence.”
Jim suggests that that the goal of regulating tax return preparers is “to produce more accurate returns, and thus improve revenue and compliance across the board, as it ought to be”. He rightfully points out that “Congress has created a tax law that rivals quantum physics in terms of difficulty, which surely makes attaining competence just that much more elusive, but that does not diminish the need for tax competence by all preparers”.
I encourage all to read Jim’s entire post. And I hope that David Williams of the IRS, an admitted TWTP visitor, is “listening”.
In one of his posts Joe Kristan suggests that – “If a preparer is incompetent, clients will inflict punishment by walking away long before the IRS has any idea what is going on.” But, as a result of what Jim Maule correctly identifies as “Congressional mismanagement of the tax law”, how does the average taxpayer know if a preparer is incompetent? They use the services of a tax preparer mostly because they themselves do not know the Tax Code, and don’t want to be bothered reading through the instructions or doing research. The preparer’s incompetence is generally only discovered if there is an audit, or if the taxpayer chooses to use a different, and more competent, preparer upon the retirement or death of the previous one or due to a move.
How many times have I seen returns from potential new clients where the previous preparer claimed a ridiculous, and totally unallowable, deduction - which the preparer himself/herself may have genuinely believed to be deductible, and which the taxpayer had no reason to believe was not allowable?
To repeat what I have said in earlier posts - we all agree that regulation, in any industry, does not prevent fraud. But regulation does help to prevent incompetence.
to be continued . . .
TTFN
To recap - my entries in the debate have included –
REGULATION DOES NOT PREVENT FRAUD,
AND THE BEAT GOES ON, and
I WISH THEY WOULD EXPLAIN.
Joe’s return volleys were –
REGULATION DOESN’T WORK. LET’S REGULATE SOME MORE,
INSTITUTE FOR JUSTICE SPEAKS OUT ON IRS POWER GRAB,
FUNNY, YOU DON’T LOOK UNREGULATED, and
SUPPLY, DEMAND.
In addition, we both referred to THE IRS AND THE LATEST LICENSING OUTRAGE by Dan Alban.
I would like to provide my final (and I mean it) words on the subject, in response to the arguments put forth by Joe Kristan and others.
Joe’s case against the current regulation regime, which is shared by Dan Alban and others, is basically 2-fold:
(1) Tax return preparers are already regulated; and
(2) Regulation will create a seriously increased cost and workload burden on tax return preparers, causing many to leave the business, and result in a substantial increase in the cost of preparing 1040s.
Today I will respond to the first issue, and tomorrow I will finish by dealing with the second.
Joe rightfully states that there are already in place criminal and civil penalties for tax preparers who encourage or commit tax fraud and who encourage or take “frivilous” tax positions.
Just about any activity, enterprise, industry, or profession, whether regulated or not, is subject to criminal and civil penalty when fraud, or other “inappropriate” action, is involved. It is true that under current law and regulation a tax preparer, “enrolled” or not, can be penalized for attempting to defraud the government, just as an individual taxpayer can.
But the reason for regulating tax preparers, as with regulating any profession or industry, is not to be able to penalize members for bad behavior. The main purpose of regulation is consumer protection by establishing minimum standards of competence and currency.
The purpose of regulating tax preparers is to assure the general taxpaying public that a person who hangs out a shingle as a “professional tax preparer” actually knows his arse from a hole in the ground when it come to preparing 1040s, and remains current on the multiple annual changes to the Tax Code.
Professor Jim Maule of MAULED AGAIN has written an excellent and, as usual, scholarly post on the topic of tax return preparer regulation, mainly in response to Dan Alban’s commentary (referenced above).
While “Tax Return Preparer Regulation: What About Attorneys and CPAs?” is mostly concerned with the current exemption from testing and required CPE in federal taxation for CPAs and attorneys, in agreement with both Dan Alban and myself, he does touch on Dan’s, and Joe’s, argument that regulation is unnecessary because tax return preparers are already regulated.
“Tax return preparation is no different from any other industry whose participants have the power to help or hurt its clients or customers. Existing penalties are not preventing the unethical behavior of a few “bad” preparers whose actions end up tainting the entire industry’s reputation. Some taxpayers have been ill served by their tax return preparers, and “some” is too much. When one considers the various industries that are properly regulated, in every instance clients and customers are better off than they were before regulation, and when one considers the various industries that are not regulated or that are inadequately regulated, clients and customers end up on the short end of the deal. Aside from the ethical issues raised by preparers who file fraudulent returns, steal refund checks, or otherwise cheat their customers, the bigger issue is one of competence.”
Jim suggests that that the goal of regulating tax return preparers is “to produce more accurate returns, and thus improve revenue and compliance across the board, as it ought to be”. He rightfully points out that “Congress has created a tax law that rivals quantum physics in terms of difficulty, which surely makes attaining competence just that much more elusive, but that does not diminish the need for tax competence by all preparers”.
I encourage all to read Jim’s entire post. And I hope that David Williams of the IRS, an admitted TWTP visitor, is “listening”.
In one of his posts Joe Kristan suggests that – “If a preparer is incompetent, clients will inflict punishment by walking away long before the IRS has any idea what is going on.” But, as a result of what Jim Maule correctly identifies as “Congressional mismanagement of the tax law”, how does the average taxpayer know if a preparer is incompetent? They use the services of a tax preparer mostly because they themselves do not know the Tax Code, and don’t want to be bothered reading through the instructions or doing research. The preparer’s incompetence is generally only discovered if there is an audit, or if the taxpayer chooses to use a different, and more competent, preparer upon the retirement or death of the previous one or due to a move.
How many times have I seen returns from potential new clients where the previous preparer claimed a ridiculous, and totally unallowable, deduction - which the preparer himself/herself may have genuinely believed to be deductible, and which the taxpayer had no reason to believe was not allowable?
To repeat what I have said in earlier posts - we all agree that regulation, in any industry, does not prevent fraud. But regulation does help to prevent incompetence.
to be continued . . .
TTFN
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