A while back Janet Paskin of SmartMoney Magazine wrote an article titled 10 Things Tax Preparers Won’t Tell You. One item in particular on her list caught my attention given the ongoing debate about IRS regulation of tax preparers and which tax preparers among us have the right to call themselves professionals:
4. “What are my qualifications? Well, I’m real good at Sudoku.”
Every April, Sen. Grassley calls IRS officials before the Finance Committee to grill them on taxpayer protection. He’s increasingly concerned about unethical, unlicensed tax preparers and what he calls “sharks in the water.” “Anyone can call himself a tax preparer,” Grassley laments.
Many do. There’s no mandatory national licensing, and Oregon California are the only states that require tax pros to take a test. That means as many as 600,000 tax preparers are unregulated, according to the National Taxpayer Advocate, the taxpayer assistance wing of the IRS. Some may set up shop in a local real estate office, but many work for the big chains.
Translation: There’s no universal standard for qualification. Licensed preparers, who are usually CPAs or enrolled agents, are tested and must meet ongoing education. Unlicensed preparers do neither. In general that’s fine—no harm, no foul. But in the worst-case scenario—say, a tricky audit—only a pro with a license (or a lawyer) can represent you before the IRS.
I have said before that there are many unlicensed tax preparers who are quite competent. I have even had the occasion to refer tax return preparation work to several local, unlicensed preparers whom I know to be excellent tax advisors.
But the fact that some unlicensed tax return preparers are competent is irrelevant. Absent a regulatory regime the average consumer has no way to make a reasonably informed judgment about whether or not the particular unlicensed tax preparer he wishes to hire possesses even the most rudimentary skills necessary to be a competent tax return preparer.
Of course, as Joe Kristan likes to point out, tax preparer regulation will not eliminate incompetent return preparation or unscrupulous tax advice. But complete eradication of bad acts is never the goal of the lawmaker. We have laws prohibiting drug trafficking, yet we still have drug trafficking. We have laws prohibiting theft, yet we still have theft. Would anyone suggest that because these laws have not resulted in the complete elimination of the proscribed behaviors that we repeal them?
What IRS regulation will do is exclude from the profession* many bad actors and by so doing elevate the status of those competent, scrupulous and, yes, professional unlicensed preparers who choose to become licensed.
*Unlicensed preparers who meet the requirements for licensing will, by virtue thereof, become members of a profession.
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See category Regulation of Tax Preparers for more.
10 responses so far ↓
1 Mary // Oct 18, 2009 at 10:45 am
You wrote above that once IRS preparer regulations are in place, then currently unlicensed preparers will automatically become members of a “profession” by virtue of meeting the requirements imposed by the IRS.
It’s interesting that you are willing to make this assertion before even knowing what sort of preparer regulations the IRS is going to propose.
Suppose the IRS preparer regulations turn out to be as minimal as those that New York State is about to impose on all preparers starting in 2010. The NY preparer regulations will require paid preparers to register and pay a fee, but little more than that. http://www.tax.state.ny.us/tp/tpreg.htm
If the IRS decides to adopt similar minimalist requirements, will compliance with that be sufficient to make preparers who comply “members of a profession.”
Or, for that matter, consider those of us who are VITA preparers. We already comply with the IRS regulations that require us to register with the IRS and we are required to pass annual IRS competency tests. Are we already members of a “profession” by virtue of meeting those requirements? I do not believe so. And yet the requirements which we volunteers currently meet have been proposed as a possible model for paid preparer regulation. If the requirements ultimately imposed on paid preparers turn out to be identical to the requirements currently imposed on us as volunteer preparers, I still don’t believe that our compliance with those regulations will make volunteers members of a “profession.”
Or what about the many paid preparers who already comply with the IRS requirements for ERO status (Electronic Return Originator)? Are they already “tax professionals” or members of a profession, by virtue of their compliance with those IRS requirements, which include a criminal record check, personal tax background check, and fingerprinting.
2 Peter // Oct 18, 2009 at 11:59 am
Mary,
I am assuming that the IRS regulatory requirements will be substantial and meaningful.
If it’s just a matter of identification, then I agree with you. They won’t be members of a profession.
3 Jeff Day // Oct 20, 2009 at 9:47 am
I posted the following on TaxGuy’s blog seems appropriate here:
I have been an EA for, we will say more than a few years. I have read and re-read where more than on, we will say more than a few occassions, that the “store front” tax preparers are, we will say less than competent.
Now this diatribe about preparers not being “enrolled” appears to me just like the other to be trite silliness. I have met more than a few EA’s and/or CPA’s that had no clue how to prepare the “most legally advantageous that is within the law”. I have met more than a few “unenrolled” tax preparers that were very good at their practise.
Just because someone has the ability to pass an exam (EA) in those areas that really have absolutely nothing to do with actual preparation of tax returns, doesn’t make them a competent tax preparer. Just because someone has the ability to pass an exam (CPA) in those areas that make them a more competent book-keeper, has nothing to do with either the actual preparation of tax returns or the integretity of doing what is right on behalf of the clients instead of what is right in their own personal checkbook.
I choose to work for the biggest boys on the block, that is my personal choosing. I personally prepare more tax returns that most CPA firms do in our area. I have probably represented more taxpayers in audits than any CPA firm in our area. I don’t write this to be a braggard, I write this to illustrate that everyone is an exception to everyone else.
Whether we are talking about taxpreparers or any other “PROFESSSION” we have an obligation to ourselves, our familiies, our clients, our God to do perform in the best possible manner. If a person doesn’t intend to try and perform living up to our obligations, we should get out of the business. If we live up to those obligations, no one else has any right to say what we should do.
Jeff Day EA
Evansville, IN
4 Peter // Oct 20, 2009 at 10:40 am
Hi Jeff,
I have said (ad infinitum, I might add) that the licensing and regulation of preparers (or attorneys, or doctors or engineers, for that matter) does not guarantee competence. It merely makes competence more likely.
The fact that there happens to be a non-licensed Doctor out there somewhere who knows medicine better than a licensed Doctor is not a good enough reason to do away with the licensing and regulation of Doctors.
You said:
The reason we need licensing and regulation is because, human nature being what it is, people left to their own devices don’t always live up to their moral obligations. If they did we wouldn’t need any laws. Or prisons, for that matter.
Finally, I agree with you that many CPAs and lawyers don’t know a thing about preparing tax returns. That’s why they call themselves auditors, forensic accountants and trial lawyers. My contention is that a CPA or lawyer who prepares tax returns for a living is a better choice than an unenrolled, unlicensed, unregulated layman who prepares tax returns for a living.
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