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New IRS tax-preparer rules draw opposition

Requiring tax pros to take a competency test and engage in continuing education is unlawful, argues the nonprofit group that plans to file a lawsuit.

By MSN Money Partner Mar 12, 2012 5:59PM
This post is by Richard Rubin of Bloomberg.

 

A nonprofit group plans to sue the Internal Revenue Service and argue that the agency’s effort to regulate tax-return preparers is unlawful.

 

The Institute for Justice, an organization in Arlington, Va., that seeks to protect individual liberties, said in a statement it will file the lawsuit Tuesday in U.S. District Court in Washington.

 

"They’re wildly overextending their actual authority granted by Congress," said Dan Alban, an attorney at the institute who is representing three tax-return preparers.

 

The IRS regulations, which are scheduled to take effect incrementally over the next several years, require tax-return preparers to pass a competency test and meet continuing education requirements.

 

Last week, the IRS said it had begun sending test results and certificates for those who have become registered tax-return preparers. (Post continues below video.)

Alban said the regulations benefit attorneys, certified public accountants, enrolled agents already granted authority to practice before the IRS and large tax-preparation chains such as H&R Block. Those groups either have been exempted from some of the rules or have economies of scale that give them an advantage over independent preparers.

 

The IRS doesn’t comment on potential or pending litigation, Grant Williams, an agency spokesman, said in an e-mail.

 

In a November 2011 speech to the American Institute of Certified Public Accountants, IRS Commissioner Douglas Shulman said the return-preparer program would improve compliance and limit tax fraud.

 

"Boiled down to its essence, the program will ensure a basic level of competency for return preparers while enabling us to focus on finding unscrupulous preparers," he

said.

 

Alban said the IRS could accomplish those goals with return-preparer registration rules that the lawsuit won’t challenge and with existing penalties for tax fraud and other infractions.

 

Edward Karl, vice president for taxation at the certified public accountants group, said accountants and other professionals already have extensive testing and continuing- education standards.

 

"I do understand why folks who have done this for years and feel that they’re competent don’t want to change," he said.

 

More from Bloomberg and MSN Money:

VIDEO ON MSN MONEY

12Comments
Mar 13, 2012 4:33PM
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Here's a better idea:  Scrap the current tax code completely, set up a "flat" tax - maybe with a scale based on income, keep maybe an exemption for home ownership - but made simple enough so that anyone who can add can do their own taxes and be sure that others (including corporations) are paying their share...  Then we won't have to employ milions of people conducting "make-work" accounting that doesn't accomplish anything constructive...
Mar 13, 2012 3:21PM
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Start first with an old IRS penalty to a paid preparer for "frivolous" returns (which they define) of $1000, which is now $5000. Add to that an annual fee for registration with the IRS of $63 and required continuing education courses that for a Preparer alone represent @ $1300 per year.

 It doesn't matter if you read all the IRS bulletins, research Tax Code, and demand financial records in order to correctly (as best you can) complete client returns. You have "pay to play".

 

 What matters is simply money. Does the fee for annual registration go to the Service (the IRS) where it could be used to train Examiners, update equipment, or provide additional security for online transactions and electronic records (currently not as secure as would be hoped)? Is any portion of the fees charged by the vendors of Continuing Education required by anyone who signs returns flow back to the IRS?

 

 As a Paid Preparer since 1996, I take pride in the accuracy of my work and understand that the penalties for shoddy or fraudulent returns are already severe. It is apparent however (at least to me) that the IRS is creating revenue via their regulations and that those preparers not linked with tax firms, CPA's, or Attorneys will be forced to pass on the costs of being a "certified" Preparer and probably lose clientele as a result.

 

 Basically, the new regulations mean that the "little guy" (taxpayers included) gets milked by large corporations and the government under the heading "Paid Preparers Must Be Controlled".

 

 As though a $5K fine and possible prison sentence weren't enough....

 

Mar 13, 2012 9:25AM
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"Those groups either have been exempted from some of the rules or have economies of scale that give them an advantage over independent preparers."

 

I would think that people would be happy knowing that the person who is preparing their taxes was competent.  Unfortunately in my line of work I have seen both (competent and not so much), whether independents or large organizations, I believe this is an appropriate "sifting" method to TRY and stop those who either do not know what they are doing or are scamming those who may not know enough about the tax system. I do not know of any exemptions but I DO agree that the resources can be had to further train independents can be expensive.  A better way.............?

Mar 14, 2012 9:39PM
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The people who go to the HR& Block courses only get about 30 hours of training.
I'm one of those 'H & R Block' people.  The initial course requires about 90 hours of training. on taxes theory, tax law, software usage and  ethics.    Required homework adds about another 60 - 80 hours. I know, I  taught  it.  I was certified by my state to do so.  I am an enrolled agent and I take about 40 hours plus each year of continuing ed although I'm only required to take 24..  And  I have over 20 years of experience.   Liberty and Jackson Hewitt  and those Mom and Pop storefronts on the other hand....  if we are going to name names....in my office the least qualified person has only three years experience, but he's a CPA. so we cut him some slack. 
Mar 15, 2012 11:25AM
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H R Block has been pushing this for years as a method to eliminate competition and have apparently succeeded . This should help them after the loss of the RAL fees .

 

As usual , this regulation will drive up costs , reduce the number of preparers and benefit only the large tax preparation firms .

Mar 13, 2012 9:42PM
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I am 'exempted' from compliance.  Why?  Because as an EA I took a three day pencil and paper test 9 years ago and continue to exceed the required continuing ed requirement by about an extra 20 - 30 hours each year.  My employer pays for my continuing ed and my registration fee.  I say  everyone else should be required to pass a similar test and undergo a similar background check.  I am appalled at some of the returns I see that were prepared by other 'tax-pros'.  It's consumer protection and it's about time.

 

EDITED TO ADD  - why would anyone  want the people who prepare taxes for money to NOT have to pass a test  devised by the IRS to prove their expertise?  Or to have to prove a certain amount of continuing ed?  Or take required courses on changes in the tax law?  Or undergo a criminal background check?  The only reason i can think of is that they want to continue as they have been - cheating the IRS, the American public and their clients.

Mar 18, 2012 10:50AM
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A better way to get everyone to pay their fair share is a federal sales tax.  Do away with income tax completely.  First it is unconstitutional for individuals to be taxed on their income (not so for corporations).  Second every one that spends in this country - including visitors, illegals, the poor, the rich would be contributing to the country and it's benefits programs instead of sucking it dry.  It would spread the tax based on what you can afford to spend and everyone including corporations and the rich would pay.  Eliminate a sales tax on the "necessities of life" IE - housing, utilities, food and health care.  Set a permanent cap on the tax of not more than 2%.  Do away with the IRS, which consumes 65% of all the taxes it collects. Put the burden of tax collecting in the hands of individual states that already have revenue departments in place.  Oh but wait that's to simple, and doesn't justify the necessity of huge government departments that waste our tax dollars... so I suppose it will never happen since it's logical. 
Mar 13, 2012 2:17PM
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Before the IRS did this anyone could say they did taxes with no training or tax knowledge.  A person who cuts hair needed to be licenses, yet the group is complaining about requiring a tax preparer know something about taxes.  Just because some said they could do taxes didn't mean they would be there if or when the return was audited.   I have been a tax preparer for over 20 years. I have felt it was important to keep up with the changes in tax laws.

Mar 14, 2012 7:21PM
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That is a great idea! Why not? There are too many people doing taxes that just aren't trained to do them. Then there are these people who think they have been trained enough, and take people for a ride. A public accountant has years of training. The people who go to the HR& Block courses only get about 30 hours of training.

Now look at this. Would you buy insurance from someone who is not licensed in your state? Why would you pay someone to do your taxes that is not familiar with tax forms?

Mar 27, 2012 6:53PM
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dvaloy, i hope you dont prepare taxes because what you just wrote makes no sense at all
Mar 19, 2012 8:49AM
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I agree completely with sonorankat below. The government will never look to change the tax code because that's where they get their contribution for reelection from. They give out favorable tax loop holes for tax breaks.
Mar 25, 2012 10:00AM
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how many rules and regulation they will have are they stop there of simple push all tax preparer to lef only big company work what about the other is good for whon ,looking for better way to eliminate thousandConfusedThinking of worker in the economic is going to be worst
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