Paul L. Caron

Sunday, October 10, 2010

IRS Prefers Snot-Nosed Harvard Law Grads Over Experienced Tax Return Pros

Dan Alban (Staff Attorney, Institute for Justice; J.D. 2006, Harvard), The IRS and the Latest Licensing Outrage (The Daily Caller):

Who would you rather prepare your taxes? A professional tax return preparer with over a dozen years experience in preparing tax returns for taxpayers without incident. Or me, an attorney who has never so much as taken a law school class or continuing legal education course in tax law, and gave up on doing his own taxes last year once he started needing to itemize his deductions. You probably think you’d prefer the first option, but the IRS says you’re wrong.

At a hearing that I am testifying at today, the IRS will consider adopting a sweeping licensing scheme that would place the careers of 700,000 tax preparers in jeopardy and likely harm over 87 million American taxpayers while benefiting a few politically-favored insiders.

Inexplicably, the proposed regulations exempt certain favored industry insiders. The IRS wants to 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.

[M]ake no mistake about it: These increased regulatory costs — along with the likely decrease in competition — will increase the cost of tax return preparation services. ... These proposed regulations are an attempt to fix a system that isn’t broken. You don’t need the IRS to approve who can prepare your taxes, and you certainly don’t need the IRS to favor an unqualified attorney like me over an experienced professional.

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Tracked on Oct 10, 2010 2:16:12 PM


There does appear to be some confusion about who is qualified to prepare tax returns. As a cpa, tax is my business. However, I prepare returns for other CPA's and attorneys who are not tax "people" as their careers have taken then in other directions. CPA's who specialize in audit or other consultation or work in private industry have about the same knowledge to prepare tax returns as your average citizen.

In my post Seven Things Your Accountant Should Have Told You I say:

1) Hire the right accountant. Accountants have niches just like other professionals such as attorneys and doctors – if you were getting a divorce [god forbid], you would hire a family law attorney, not a tax attorney. Well, the same rule applies with your accountant. Your accountant should have experience working with clients in your particular industry -this will make sure that he or she understands and applies the correct tax laws.

Having CPA or JD after your name does not insure that you know anything about tax.

Posted by: Stacie Clifford Kitts | Oct 17, 2010 11:04:51 AM

Isn't the point that lawyers and CPAs are likely to more responsible about knowing the boundaries of their professional competence? That, and they are more likely to have reputations to protect? What does this have to do with Harvard, precisely?

Obviously that was written by someone who doesn't often deal with lawyers or CPAs.

Posted by: Joe Strummer | Oct 14, 2010 9:26:36 AM

The same website (Daily Caller) includes an article titled "The Death Tax is killing family businesses" so anything made available on that site should be read critically. Words are cheap.

Posted by: Scott | Oct 14, 2010 9:20:32 AM

Isn't the point that lawyers and CPAs are likely to more responsible about knowing the boundaries of their professional competence? That, and they are more likely to have reputations to protect? What does this have to do with Harvard, precisely?

Posted by: BA | Oct 13, 2010 2:33:14 PM

Whoa here - first, as Bob pointed out, ALL tax preparers - including CPAs, Attorneys and EAs - will have to get a PTIN. So unless you're already doing tax work, you're probably not even aware of PTINs, much less getting one.

Second, this program came about because of unscrupulous preparers - many of whom are individual 'kitchen table' preparers who DON'T keep abreast of the law, or openly flout it, or - worse yet - give incorrect advice to taxpayers. I could spend a large chunk of time detailing all the crap I've seen over the last 20 years by unregulated preparers - deducting an actor's tickets to first run movies as 'research', claiming deductions specifically excluded, taking untenable positions - all of which resulted in taxpayers not only paying additional taxes, but penalties and interest.

I'm sure some preparers - my father included - will stop preparing returns rather than comply. But there are many, many, unscrupulous preparers who will take improper deductions, giving you a big refund, and then leave you holding the bag when the IRS comes calling. THAT'S the reason for this program, not as a 'protectionist' measure.

Posted by: Greg | Oct 11, 2010 8:38:11 PM

Lawyers, nevertheless, are not exempt from the $64 annual fee for a practitioner ID number, if they actually want to prepare tax returns. (An 8-digit indentifier, that works out to $8 per number, obtained through a private contractor. They check on your tax compliance -- or at least, they check on the tax compliance of the person named in the online application, so it's also a good way to check on someone else, if you know how the system works.)

The issue no one wants to talk about is the push toward mandatory electronic filing, coupled with mandatory random IRS inspections of client files.

Posted by: Bob | Oct 10, 2010 11:34:11 AM

Are these the same experienced pros who, in one test, gave seven different answers to essentially the same question?

Posted by: mike livingston | Oct 10, 2010 8:18:13 AM