February 4, 2013
WSJ: Beating the Tax Return Preparer Regs. And the Horse the IRS Rode In On.
Wall Street Journal editorial: Beating the H&R Tax Blockers. And the Horse the IRS Rode In On:
Big government and big business are often blood brothers, colluding to squeeze out the little guy. So here's a shout out to a group of small-business tax preparers who have struck a blow for competition and the rule of law.
Our story begins with 2011 IRS regulations that require anyone who takes money for tax-preparation advice to be licensed by the federal government. For the first time, tax preparers have to pass a qualifying exam, pay an annual fee and submit to 15 hours of continuing education every year.
As we noted in a January 7, 2010 editorial, the compliance costs would push many mom-and-pop advisers out of the market, raising prices for millions of taxpayers who need help with their increasingly complex tax forms.
That was precisely the goal of tax giants like H&R Block that lobbied for the rule. They were joined by the likes of Intuit (seller of do-it-yourself tax software) and professional accountants, who were exempt. (Accountants are more politically organized than mom and pop.) These big players found a big ally in the IRS, which saw a chance to expand its power and use exams to, er, nudge tax preparers into offering advice that yields more revenue to the government.
Enter the Institute for Justice, the public-interest legal group that challenged the rule in court on behalf of three independent tax preparers and charged that the IRS lacks the legal authority to write such rules. The IRS had based its authority on an 1884 statute (predating the IRS and the income tax) that concerned military pensioners who had monetary claims against the U.S. government, mostly for lost horses. Yes, lost horses.
The Institute for Justice dared to point out that the IRS itself had in the past acknowledged that the 1884 horse statute didn't let it regulate tax preparers. The Institute further pointed out that Congress had failed on eight separate occasions to pass a law that would have specifically given the IRS such rule-making power.
"In the land of statutory interpretation, statutory text is king," noted District of Columbia federal Judge James Boasberg, in a ruling last month siding with the plaintiffs. If the IRS views tax-preparer licensing as "vital" policy, then it ought to get Congress to agree, he said, slapping a permanent injunction on the rules.
Judge Boasberg on Friday denied the IRS's request for a stay of the injunction. Rather than continuing to fight in court, the agency would do better to cashier the rules on legal and economic grounds. They are a classic example of big business harnessing government power to aid the powerful at the expense of small-business competitors. Meantime, won't someone in Congress tell the IRS to stop exceeding its legal authority?
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lobbied for the rule...professional accountants, who were exempt. (Accountants are more politically organized than mom and pop.)
What a bunch of malarkey. First, profesional accountants don't have as much political influence as he indicates. Political influence better describes attorneys, because they predominately make the laws, which they use to screw over CPAs in Georgia, as an example. It was all professional accountants could do to be exempted from reporting CPE to the IRS, which initially included that group. Second, professional accountants don't serve the same markets as the mom and pops, who, for instance, cater to people with very simple returns. So, they would have no interest in trying to corner that market.
And, I still want my $63 PTIN renewal fee back from the IRS!
Posted by: Woody | Feb 4, 2013 3:31:54 PM
The Wall Street Journal should stick with reporting the weather.
Posted by: Kelly | Feb 5, 2013 6:56:10 AM
One of the largest current problems in tax administration is "mom and pop" return preparers. Many of these operations are fly-by-nights who produce returns with bogus deductions and at times outright fraudulent entries, counsel "clients" to file them, and then disappear. Their "clients," a/k/a taxpayers, are then left with deficiency tax bills because mom and pop either didn't know what they were doing or purposely gave bad tax advice. I agree with Kelly--the WSJ should stick to the weather.
Posted by: Publius Novus | Feb 5, 2013 9:34:39 AM
I feel that Attorney's & CPAs should NOT be automatically exempted. See my tweet (@FavoredGB) dated 1.26.13. In sum, NOT ALL Attorney's & CPAs are tax experts, so why should they ALL get a pass on the CPE requirements?
I know many Attorney's & CPAs who don't know taxes from a whole in the ground - they're great folks, but taxes are just not their specialty.
I could care les if they "already have a substantial annual CPE requirement". Let them submit their CPE hours just like everyone else. Its as though the IRS is saying that an Attorney and/or CPA would never, could never make a HUGE error on a tax return and injure the public! What a wasted attempt at logic that is...government regulation at its best!
The IRS should require that the Attorney and/or CPA PROVE their specialty in taxation in order to be exempted from the CPE submission rules.
Posted by: GB | Feb 5, 2013 11:17:26 AM
I have been a "mom & pop" tax preparer for 37 years (with 336 clients last season). I do not mind the CPE requirements. We should be held to a standard that indicates we are keeping up with the ever-changing tax laws. What I disliked about the program is both the annual costs of PTIN's and the cost and inconvenience of having to drive to another city to take a test. In the end, it is our customers who end up paying a bigger bill to cover our increased overhead.
Posted by: Mike | Feb 5, 2013 11:39:43 AM
I am a CPA and I own my licensed CPA firm with my husband. We don't have any employees and we do all of the work ourselves from tax returns to audits to payroll and bookkeeping. I worked very hard to pass the CPA exam and to have the education that I do have which allows me to accurately prepare tax returns and give tax advice. I am by definition a mom and pop firm and I FULLY SUPPORT the IRS requiring all tax preparers to take a test and attend regular CPE. I am held to that standard as a CPA so why shouldn't every other tax preparer be held to the same standards?!?! The fly by night shops that significantly discount their services because they don't have to pay for the same training and education that I have are what is making it difficult for me to charge a reasonable fee for my services. Also, most of the employees of H&R block could not pass the exam to begin with so.... what's the problem. I am very upset with the results of the court and wish they could change the law to say that only CPAs or EAs can prepare and sign tax returns. Shouldn't we let the people willing to learn the complex tax law be the ones to do the tax returns. I think we would have better compliance that way.... If you can pass the test and are already getting the annual training required than why protest the requirement??
Posted by: Katie | Feb 5, 2013 12:00:00 PM
The blogger exposes his agenda when he says " the IRS, which saw a chance to expand its power and use exams to, er, nudge tax preparers into offering advice that yields more revenue to the government." The only way that makes sense is that he understands that a lot of fraudulent advice is going around and regulation would make people more scared of committing fraud. There is nothing in the regs stopping a preparer from advising the highest legal refund. I do agree that although there should be regulation, the IRS had no authority to do so and set up the rules with an ea (like myself) able to "supervise" returns so places like HR Block could use unqualified preparers.
Posted by: nonsense | Feb 5, 2013 12:12:42 PM
GB, if all preparers have to "prove" to the IRS that they are qualified to prepare tax returns, wouldn't you agree that everyone who prepares his own return should be held to the same requirement?
But, GB, if you've ever been to a continuing education presentation, you would know that many are not that helpful or are very specialized and that many of the attendees are only half-way listening and are there because of license renewals. Being in attendance proves nothing. Self-study is even worse.
At least all CPAs have to pass a tax section to obtain licenses. I don't know if the same is true of attorneys.
But, your idea to "register preparers" would be as successful as "registering gun owners." The bad ones will still be out there and might be paid under the table and not sign the returns. The IRS targeting all preparers when only a small number are the problem is like the rounding up of all Americans of Japanese descent in WWII because a few might be spies. It's stupid...and typical government.
Here's an article on just one requirement the IRS imposes on preparers. They are trying to get us to do their work for them. Be sure to read the comments, as those cut to the chase.
Commenter: Does anyone else get the sense that the IRS is once again trying to make tax preparers do the IRS's job? I realize the EITC program is full of abuses, but this enhanced 4 page due diligence questionnaire is ridiculous. Why not put this checklist out for every Schedule A, C & E and any other form that has data not directly reported to the IRS by a third party? I think it's a disservice to our clients that we now must report how the information was obtained from the client. At what point are we representing our clients and at what point are we lackeys for the IRS?
Posted by: Woody | Feb 5, 2013 1:09:32 PM
The IRS representatives could use some proving of their own that they understand taxes.
Posted by: Woody | Feb 5, 2013 1:49:06 PM
The blog post is excellent. The IRS was continually prodded by the big Franchisors to force licensing on Tax Preparers. This way they would force the lower-priced competition out of the market and H&R Block could continue to get its high (1/3 of Gross) fees. This happens all the time; trades and businesses use government to restrict competition. There is no reason that a NJ Lawyer should not be able to practice business transactions in DE (and the same with CPA's) except for the self-protection of governmental licensing.
Secondly, the IRS is the last organization that I want regulating tax preparers and CPA's, PAs and Attorneys. Professionals should be independent and zealous advocates for their clients, not the government. The IRS has EAs which it regulates. That is their own construct. Everyone else should be left alone.
Posted by: Ronald J. Cappuccio, J.D., LL.M.(Tax) | Feb 5, 2013 4:09:19 PM
Amen, brother! You understand personal liberties as guaranteed by our Constitution and Bill of Rights. And you are right-on talking about the politicality of the CPA organization. Just like real estate brokers and unions, these professional organizations have their place but don't enlarge your boundaries by snuffing out the little guy who resides outside the realm of your organization especially when done in-cahoots with the IRS. Its simply bad business.
Posted by: VMO | Feb 5, 2013 4:58:52 PM
Althouhgh I am a CPA and forcing the non-CPAs to be hassled would ostensibly be better for me because such would putatatively result in less competition, I APPLAUD THE COURT RULING ALLOWING small non-CPA preparers to continue without the useless burden of testing and continuing education.
I have worked for CPA firms. A lot of the CPA firm partners, et al are incompetents and unethical. These reprbates pass an ethics exam that allows them to be dishonest legally!
If a person is competent and honest, these are facts of character, not taking a bunch of useless tests and continuing education classes that are pointless. The continuing education business is a RACKET.
I just wish the court would have also struck down the extortionist PTIN registration fee--money paid to the IRS for what?--nothing. I have one of the first PTINs; suddenly, I need to renew it and pay for it?--a scam.
At least the court ruled for the good people for a change, and I hail my competitors for having the courage to fight against the pompous blowhards and the insufferable IRS.
Posted by: MRJBOND | Feb 5, 2013 9:42:40 PM
I have been reading several of the blogs and no one has mentioned the CPAs, Attorneys, or EAs that have filed fraudulent returns and been fined or are serving jail time. Having been in business for almost 20 years now, I have had a PTIN number for that length of time. I got it because I did not want to use my Social Security number on a return being given to a taxpayer. At that time the PTIN was optional, free and did not need to be renewed each year, nor was there a fee involved with receiving it. So, bottom line, having a PTIN and having passed competency testing does not mean that fraud or errors are going to go away.
Posted by: KIA | Feb 6, 2013 9:55:22 AM
I remember getting fingerprinted in the mid 1980's, so I could do efiling. I am an accountant with a MBA and have about 85 clients. I have done my CE's and past the RTRP exam. I also had a PTIN since the 1980's which was free now it's another money grab.
My question is why the additional costs now? The IRS was able to grant PTINS at no charge for many years?
Posted by: Joe | Feb 6, 2013 1:59:41 PM
Let's see: "mom and pop" plumbers, electricians, and landscapers have licenses. So does the "pop" who cuts my hair. But, a "mom and pop" tax preparer should not have to demonstrate even modest competency in tax preparation, because the cost to do so would put them out of business? What a silly argument.
I am an Enrolled Agent and have demonstrated I have a moderate understanding of tax law and procedure. Clients seem to think this is a good thing.
I am also a Commercial Pilot and have demonstated I can fly an airplane with more than one engine in bad weather to a safe landing. Passengers appreciate this.
As a teenager, I was a ham radio operator and demonstrated I could communicate via Morse Code, which back then came in handy during hurricanes.
My point is this; if you claim you can do something correctly you should have no problem proving it. Hiding behind "mom and pop" and other political smokescreens ought to be embarassing, not liberating, to anyone holding themselves out as a professional.
Posted by: Van Lanier, EA | Feb 8, 2013 3:27:40 PM
I don't see how these regulations squeeze out mom and pop operations. Any business that can't afford $63/year shouldn't be in business. The industry needs regulating like any other financial license.
Posted by: Chris | Feb 9, 2013 3:35:35 PM