Victory For The Little Guy Tax Preparer
I love how the Institute for Justice goes to bat for the little guy against federal and state licensing schemes.
If you look closely at these and who's behind them, you'll see they're usually designed to protect, no, not the consumers, but the businesses of people already in business from people trying to compete with them.
The latest from the IJ is a ruling from the D.C. Circuit Court of Appeals that the IRS had no legal authority to impose a nationwide licensing scheme on tax-return preparers.
From an IJ email:
The decision affirms a January 2013 ruling by U.S. District Court Judge James E. Boasberg, which struck down the IRS's new regulations as unlawful. Both courts rejected the agency's shocking claim that tax-preparer licensure was authorized by an obscure 1884 statute governing the representatives of Civil War soldiers seeking compensation for dead horses.
Background here at the IJ's site:
Congress never gave the IRS the authority to license tax preparers, and the IRS can't give itself that power.But in 2011, the IRS imposed a sweeping new licensing scheme that forces tax preparers to get IRS permission before they can work. This is an unlawful power grab that exceeds the authority granted to the IRS by Congress.
The burden of compliance will fall most heavily on independent tax return preparers and small businesses. Unsurprisingly, big firms such as H&R Block and Jackson Hewitt support the licensing scheme. As The Wall Street Journal explained: "Cheering the new regulations are big tax preparers like H&R Block, who are only too happy to see the feds swoop in to put their mom-and-pop seasonal competitors out of business."
These regulations are typical government protectionism. They benefit powerful industry insiders and at the expense of entrepreneurs and consumers, who will likely have fewer options and face higher prices. But tax preparers have a right to earn an honest living without getting permission from the IRS. And taxpayers--not the IRS--should be the ones who decide who prepares their taxes.
That is why on March 13, 2012, three independent tax preparers joined the Institute for Justice in filing suit against the IRS in the U.S. District Court for the District of Columbia.
I used to be a preparer for H&R Block. I honestly do believe that the effort to force people who are paid to do returns to be licensed by the IRS was to protect the consumer. In most states (not California), someone can get some software and put out a sign saying they can prepare returns. This can lead to any number of scams, including those who will add "ghost" dependents to increase someone's refund and then blackmail them into giving them most of that refund. The licensing also required preparers to take a competency exam. If someone's going to be messing with your money, wouldn't you like some assurance that they're competent in basic tax issues?
I do agree that the sneaky way the IRS was trying to create the licensing requirement was wrong.
Fayd at February 11, 2014 12:14 PM
Heh, the IRS was beating a dead horse.
I sort of agree with Fayd that some sort of requirement may be desirable, but it should be minimal (e.g. know assets-liabilities=capital). Though "desirable" is not the same as "necessary." If your tax preparer engaged in fraud and the IRS comes back at you for it, point them at the preparer (oh, make sure the preparer signs your return!) and perhaps a [small claims] civil suit.
A small point: if you get help from an IRS employee, say an answer for a technical question, that turns out to have been incorrect the employee cannot be held accountable.
Oh, and are IRS employees licensed? By whom?
John A at February 11, 2014 1:33 PM
"If your tax preparer engaged in fraud and the IRS comes back at you for it, point them at the preparer" - John A
That might absolve you of penalties, but you're still going to have to pay the IRS the tax money and interest you owe, even on a fraudulent return. In some cases, any amount you're lucky to receive in small claims court may not be enough to cover some of the major errors.
Most people know how to choose a qualified tax preparer, regardless of whether they are required to be licensed. It's the people who don't know a bad preparer when they see one who are most at risk.
Fayd at February 11, 2014 2:15 PM
I have never used H+R or any big name ones. I have a tangent question. On Fed IRS forms there is the section where you can volunteer to give money to political parties. What do the major preparers do about this? default to checking default to not, suggest to check it, suggest to not? Makes me curious if prepared forms are more likely to give to parties.
For the Mom and Pop ones since they are required to sign the form, I'd see such scams being rather rare. Having to pay the money you owe isn't a big threat, you would have had to pay it anyway. If the amount paid is so low that the interest on the difference is significant, it should have been obvious that something was wrong.
Joe J at February 11, 2014 4:51 PM
My mother worked for two season for H&R Block back in the seventies and then hung out her own shingle.
Was she anymore unqualified than the the IRS employees? They aren't accountants.
Jim P. at February 11, 2014 4:55 PM
It was intended to protect the consumer.
There are a lot of dodgy mom-and-pop rackets who lure in customers with promises of big refunds and then persuade them to sign off on returns that they should but don't know are fraudulent. The list of tricks is impressive. In some cases they get people refunds that exceed their actual income, so they're actually stealing money from other taxpayers. (Should these people know better? I think so, but it happens a lot. Should the IRS be catching some of these before the "refund" is paid out? I also think yes, but they slip through the cracks.)
If you sign the tax return, you are responsible.
These customers have to pay the money back and can end up ruined financially if they've spent it by the time they are caught. That's money the government can't recover.
Insufficient Poison at February 11, 2014 5:48 PM
As opposed to the whole EITC system that gives back more than they paid in taxes and is legal? Granted less money, but still …
Jim P. at February 11, 2014 8:07 PM
Like gun control, the regulations only affect the honest preparer. The crook is still a crook.
Goo at February 12, 2014 4:32 AM
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