The late George Stigler, winner of the Nobel Prize in economics, is famous in part because of his work on “regulatory capture,” which occurs when interest groups use the coercive power of government to thwart competition and undeservedly line their own pockets. A perfect (and distasteful) example of this can be found in today’s Washington Post, which reports that the IRS plans to impose new regulations dictating who can prepare tax returns. Not surprisingly, the new rules have the support of big tax preparation shops such as H&R Block and Jackson Hewitt, which see this as an opportunity to squeeze smaller competitors out of the market. The IRS and the big firms claim more regulations are needed to protect consumers from shoddy work, but this is the usual rationale for licensing laws and other government-imposed barriers to entry and the Institute for Justice repeatedly has shown such rules are designed to benefit insiders rather than consumers. Tax preparers do make many mistakes, to be sure, but that is a reflection of a nightmarish tax code, and the annual tax test conducted by Money magazine showed that even the most-skilled professionals – such as CPAs, tax lawyers, and enrolled agents – were unable to figure out how to correctly fill out a hypothetical family’s tax return. But since the IRS routinely makes major mistakes as well, perhaps the moral of the story is that we need fundamental tax reform, not IRS rules to create a cartel for the benefit of H&R Block and other big firms. Would any of this be an issue if we had a flat tax or national sales tax?
The Internal Revenue Service plans to test, register and screen people who get paid to prepare tax returns, stepping into a virtually unregulated business on which millions of Americans depend for crucial financial services. …the moves could increase the cost of having tax returns prepared. …Starting with the 2011 tax season, the IRS plans to require paid preparers to register with the agency. …The new testing and education standards will exempt certified public accountants, lawyers, and tax practitioners known as “enrolled agents,” who are cleared to represent taxpayers in dealing with the IRS… Tax prep giants H&R Block and Jackson Hewitt expressed support for the requirements announced Monday. Under the new rules, H&R Block “won’t be competing against people who aren’t regulated and don’t have the same standards as we do,” said Kathryn Fulton, senior vice president for government relations. …Citing a gap in the agency’s plan, Fulton said the IRS should impose the same rules on unpaid preparers of tax returns. …In field tests, the IRS noted Monday, tax-return preparers often gave bad advice. In a 2006 study in which employees of the Government Accountability Office posed as taxpayers and visited outlets of tax prep chains, all 19 preparers made mistakes, the IRS reported. …It is unclear how much of the blame rests with the tax code’s confusing nature, a perennial target of politicians’ criticism. Do regulated professionals such as CPAs perform better than their unregulated counterparts? The IRS commissioner said the agency does not have the data to answer that question.
Good lord, where does it end???
I do agree that the tax industry should be more regulated, however I do not agree that only CPA, EA, and such, are better suited to prepare taxes that a paid certified tax preparer. Tax giants like H&R Block and Jackson Hewitt are in agreement with the latest tax regulations and rules only because they think that not only will not have to compete against small mom and pops tax shops, but also they think that this is going to bring taxpayers to them, but their wrong. They need to focus on their own tax preparers in their organization who are preparing tax returns, because it is also their preparers who are also giving bad tax advice.
nWfJJP Good point. I hadn’t thought about it quite that way.
[...] reference to a distasteful IRS proposal to regulate the tax preparation industry, which is really a scheme to enrich the big firms like H&R Block at the expense of smaller [...]
I volunteer to do federal income taxes at the local library without charge. Most people’s taxes are not so complicated that advanced training is required. We do not limit customers by income. Most people seem to have a few W-2 forms and/or 1099-R and 1099-SSA forms. Other common situations are dividends, interest, and gas royalty income, and education expenses and student loans. Most people do not itemize or have business income, capital gains/losses, or self-employed income, although we do handle that when it comes up. We send people with situations outside our scope of training to other preparers. The typical return takes 30 minutes to 2 hours. One elderly lady said that H&R Block had charged her $140 to tell her that she didn’t need to file a return for 2010 taxes. We told her that for 2011 taxes for free, and encouraged her to come back next year.
[...] in 2010, I wrote about a reprehensible IRS plan to create a cartel in the tax preparation industry, which would screw small firms and entrepreneurs [...]
[...] in 2010, I wrote about a reprehensible IRS plan to create a cartel in the tax preparation industry, which would screw small firms and entrepreneurs [...]
[...] in 2010, I wrote about a reprehensible IRS plan to create a cartel in the tax preparation industry, which would screw small firms and entrepreneurs [...]