Thursday, October 3, 2013


A Wall Street Journal “Review and Outlook” editorial titled “IRS Business Protection Act” discusses the latest development in Loving v IRS, and reminds us -

Big-foot tax preparers like H&R Block HRB +0.29% and Jackson Hewitt lobbied for the regulation and have been explicit in hoping it will squeeze lower-priced competition. In 2010, one H&R Block official told the Washington Post that she was glad the new licensing meant H&R Block ‘won't be competing against people who aren't regulated and don't have the same standards as we do’. A Charlotte, North Carolina owner of 22 Jackson Hewitt stores said that ‘more regulation is good for us’ because he had been ‘seeing a decline in the business because of all these moms and pops who open up out of nowhere’."

As Joe Kristan of THE ROTH AND COMPANY TAX UPDATE BLOG has continually pointed out, the IRS regulation regime was developed under the supervision of former H&R Block CEO Mark Ernst, who, for some strange reason, was, at the time, the IRS Deputy Commissioner for Operations Support.

I had to laugh at the H+R official referring to “the same standards as we do”.  I am not aware of any evidence of such standards.  In fact the evidence is to the contrary.

One of the factors that led to the creation of the IRS mandatory regulation regime was a Government Accountability Office (GAO) study that resulted in a report to Congress titled “Paid Return Preparers: In a Limited Study, Chain Preparers Made Serious Errors”.   

The GAO sent undercover agents with two different tax scenarios to a total of 19 offices of 5 “fast-food” commercial tax chains, including H+R Block, in a metropolitan area. In only 2 instances was the correct refund calculated, but all 19 returns contained errors.

I was surprised when I was told by the GAO at an IRS Nationwide Forum that not one of the 19 preparers in the study had asked to see the undercover taxpayer’s prior year’s return!  This is the first thing I, or any preparer with “standards”, would ask a new client for.

Other undercover operations, by the office of the Treasury Inspector General for Tax Administration (TIGTA), local tax agencies, and consumer protection organizations, have found similar results.

I have stated in the past that causing “casual” tax return preparers to go out of business is not necessarily a bad thing.  To quote an earlier post on the subject – “Would you go to a ‘casual’ doctor for medical treatment? Or a ‘casual’ lawyer if you are arrested? If a tax preparer is not ‘serious’ about being competent and current in tax law then he/she is of no real benefit to his ‘clients’”. 
But I do agree that reducing the competition of Henry and Richard and others of their ilk is not good.

I join with the Wall Street Journal in the item’s bottom line –

Let's hope the D.C. Circuit puts the new licensing scheme out of business.”

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