New Regulations Ahead: Will Your Taxes be Affected?

The IRS has announced an overhaul of their tax preparer regulations. This comes at a time when a tough economy makes scams more attractive. At the same time, the possibility of a safe income from preparing taxes has encouraged less qualified people to join the industry. The IRS’s attention to this issue makes sense, but there are more questions about their actual plan.

The good news is that they’re being cautious: rather than dive right in, the IRS is asking for lots of feedback beforehand:

The first part of this groundbreaking effort will involve fact finding and receiving input from a large and diverse constituent community that includes those that are licensed by state and federal authorities — such as enrolled agents, lawyers and accountants — as well as unlicensed tax preparers and software vendors. The effort will also seek input and dialog with consumer groups and taxpayers.

The bad news?

  • This is criminalizing behavior that is already illegal: although many laws already have this effect (drunk driving laws prosecute people for engaging in behavior that could lead them to be prosecuted for manslaughter), but it’s still redundant.
  • In an economy like this, why make some jobs harder? If there are bad tax preparers out there, it’s good to make them stop, but adding new rules punishes every tax preparer.
  • This creates a false sense of security: right now, most people pick a tax preparer based on their reputation. If tax preparers have to follow more stringent rules, it increases the incentives to pass a test rather than earning trust.

I asked IRS press representative Kevin McKeon how this will affect taxpayers, and he explained that:

This process should benefit the average taxpayer. When people pay good money, they should not get bad advice. When people get bad service from tax preparers, it hurts them in many different ways. They can get penalties for incorrectly reporting and underpaying their taxes. They can pay more in interest and penalties if a preparer gets it wrong.

Conversely, when people get good tax advice, it helps them file an accurate tax return. They avoid paying interest and penalties. And it helps the nation’s tax system, and it avoids compliance problems for taxpayers down the road.

Ensuring we have a strong system in place for tax return preparers and the associated industry is very important and must be part of our overall plan. And we must ensure our system works for the nation’s taxpayers. This review — and the resulting recommendations — can help us on that path.

So it looks like the IRS is moving from fixing mistakes to preventing them. If they can do it successfully, this will be great news for the average taxpayer (and the average tax preparer, too!).

Other Tax Blogs Chime In

  • RothCPA argues that it’s redundant. Tax preparers are already punished for making mistakes.
  • PappasTax is in favor, citing fraudulent promises from tax preparers.
  • Roni Deutch focuses on the IRS’s long-term plan for deciding which changes to make.
  • Don’t Mess With Taxes points out that tax preparers are actually less regulated than hairdressers.

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