Is It Time For Federal Regulation Of The Tax Preparer Industry? New Insights From Legal And Empirical Developments

Jessica A. Magaldi (Pace; Google Scholar), Matthew Reidenbach (James Madison; Google Scholar), Jonathan S. Sales (Bentley) & John S. Treu (West Virginia; Google Scholar), Is It Time for Federal Regulation of the Tax Preparer Industry? New Insights from Legal and Empirical Developments, 106 Marq. L. Rev. 543 (2023):

The tax preparer industry is unusual in that it involves the interpretation of an intricate and complicated tax code, but imposes no minimum requirements of competency because the industry is largely unregulated. A study by the Government Accountability Office (GAO) indicated that unregulated tax preparers commit significantly higher error rates and, based in part on that study’s findings, the Internal Revenue Service (IRS) attempted to regulate the tax preparer industry nationwide under the Registered Tax Return Preparer (RTRP) regime. This RTRP program was invalidated in Loving v. IRS, however, leaving the industry largely unregulated, except in the small minority of states that have enacted tax preparer regulations.

The RTRP program’s abrupt invalidation provided an optimal setting to bring additional evidence to light on the impacts of regulation. Recent studies document that regulation is associated with more highly qualified preparers, lower error rates, and increased entrepreneurial activity, but also higher fees for tax preparation. The authors further consider the impact of regulation on IRS enforcement actions and find that the universal regulation of tax preparers may have impacted the count and rate of tax preparer disciplinary actions. These findings should be viewed with caution given some important limitations. This Article provides a comprehensive discussion of what is known about the impacts of tax preparer regulations, and provides the historical context of tax preparer regulation. In summary, this Article finds that the totality of the evidence suggests that federal regulation of tax preparers at the current time would provide a net benefit notwithstanding some of the trade-offs of such regulations.

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