The IRS’s Office of Professional Responsibility has long been trying to be a force in regulating and imposing some form of quality control over return preparers. Unfortunately, those efforts have mostly been unsuccessful. The most visible failure was when the District of Columbia Federal Appeals Court agreed that the IRS’s attempted use of Circular 230 to regulate return preparers was not a valid use of their authority.
Certainly, the government will be seeking other ways to deal with return preparers they think are not qualified, especially since they list fraudulent return preparation on their list of the “Dirty Dozen Tax Scams for 2015.” In the interim, the IRS is using good old fashioned public relations to help achieve their goals. Part of that is their recent publication of an informational webpage on choosing a tax return preparer. The IRS has even created an informational video, although it is highly unlikely to go viral without any cats in it.
Here are the tips the IRS provides (which can be found at the IRS website by clicking here):
The interesting thing to me about these tips is that some of them are clearly just to help the IRS, such as reporting the abusive ones to the IRS or making sure the PTIN is on the return. Others really don’t have to do with choosing a return preparer so much as reviewing the return to catch the preparer’s mistakes, which is after the fact (and many people don’t know enough about taxes to conduct much of a review).
In terms of checking credentials, I think Enrolled Agent or CPA designations are fairly good indicators of a minimum level of aptitude, though not always (and the bad ones often lie about having such credentials). More importantly, though, is the continuing education that the IRS mentions. I have found that the best return preparers are those taking the time to keep up to date on the laws and associate with others who do so they have a network they can go to for questions. That same competence transfers over to each return they prepare and they are less likely to take shortcuts that can come back and haunt return preparers.
At the end of the day, I think it will be difficult, and probably a mistake, for the IRS to regulate professional return preparers by imposing credential requirements. Access to inexpensive help is important, and regulation will lead to increased fees (e.g., attorneys like me) because of exclusivity. Everyone who earns money needs to file returns, and often the most important thing is that they can find someone who at least has a little more experience than they do and, in some cases, is bilingual. Try and find a CPA in some small town in the middle of the farmland in the San Joaquin Valley and you’ll see that they really don’t exist.
Also, I think people are already aware of the CPA credential and would want that kind of service if they could afford it, but CPAs are much more expensive than HR Block. So, identification of credentials and selectivity of the taxpayers is not really the primary problem. The problem is no one wants to pay extra for those credentials if they aren’t justified by the return. The IRS has created this demand for preparers, it is the free market that has created the status quo.
If the free market is failing the IRS, one possibility is the government entering the market. Instead of just testing, they can set up vocational schools and offer degrees for free. They can then hire a workforce of trained professionals and provide the preparation services themselves. Lets see them do better.
Daniel Layton, the author of this post, is the principal of Tax Attorney OC.