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But Tax Pros Are Already Certifiable…

June 18, 2009 · 19 comments

It seems that the IRS’ on again off again love affair with the idea of certifying tax preparers is on again. Earlier this month, IRS Commish Doug Shulman announced a proposal that would require tax preparers be licensed and certified. The immediate feedback on the proposal has been mixed.

My colleagues at the ABA are, of course, backing the idea of such a proposal. The ABA has been actively supporting increased oversight of tax preparers since 2004.

Even before the ABA voiced their opinion on the matter, IRS Taxpayer Advocate Nina Olson has called for regulation of the tax preparation industry (her calls for action date to 2002). In her most recent report to Congress, Olson again called for increased oversight of tax preparers. She cited a 2006 “undercover” study by the Government Accountability Office (GAO) where auditors posing as taxpayers made 19 visits to several national tax preparation chains in a large metropolitan area. Errors were found on all 19 returns, some of which resulted in thousands of dollars of improper refund amounts. In more than half of the cases, the preparers advised that reporting certain income was unnecessary “because the IRS would have no way of knowing about it.”

A similar study conducted by the Treasury Inspector General for Tax Administration (TIGTA) found nearly identical results. TIGTA auditors targeted not only commercial chains but 16 small, independently owned tax return preparation offices, as well. More than half of the returns contained errors and more than a third of those mistakes were considered to be “willful or reckless.” All of the business returns were prepared inaccurately.

So it would follow that requiring additional training and education might help resolve these issues. Or maybe not. Two states have already implemented certification requirements: Oregon and California. The initial feedback is that the accuracy of the returns prepared in Oregon has increased. But California? Not so much. The accuracy of those returns has actually decreased. Does that mean that that certification doesn’t work… or is that just California?

Therein is the problem: will certification actually improve tax compliance and reduce fraud?

Even if it would, how could the IRS possibly regulate the industry? In 2007, there were nearly 138 million individual federal income tax returns filed. Sixty-one percent of those individual federal income tax returns — about 84 million — were completed by paid preparers.

And how would we pay for it? The IRS is already underfunded. And our economy is not exactly the ideal time to be adding to the budget. Implementing many of the ideas put forth by Olson and Shulman will cost tax dollars – and while the goal may be noble, are we really willing to pay additional tax dollars to protect our tax dollars?

As you can imagine, this topic is a hot one in the tax pro world. For more information, you can see my article in the Intelligencer (subscription required). And for some great commentary, see these posts:

The official IRS release on the proposal can be found here.

What do you think? A big yes or a big mess?

{ 6 comments… read them below or add one }

1 TaxRascal June 18, 2009 at 11:56 am

I’m not sure how much I would trust someone with an incentive to maximize tax payments, when they talk about how tax preparers are not maximizing tax payments. I don’t think they would be dishonest, just that they might be more stringent about the spot-checked returns than about the average return.

2 Urbie June 19, 2009 at 9:33 am

I’m not sure whether certification would be helpful or not. Maybe it would. Having spent this season as a first-year preparer in the trenches at HRB — a tax-prep chain that has, I am well aware, a less-than-stellar reputation in the accounting profession — you would not believe some of the stories WE get, from our clients, about some of the things that happen when they go to small, storefront tax preparers. Block takes a lot of heat over over the fact that a lot of its preparers are less knowledgeable and experienced than EA’s and people like Kelly — and that’s certainly true; but the company does put us through 60+ hours of training before turning us loose to do people’s taxes, and the training, I have to say, isn’t bad. HRB’s official position, in fact, is that the company favors the institution of IRS certification requirements — because HRB’s training would be sufficient to get us certified, and I think because it would put some of the small competitors out of business. A lot of storefront preparers in poor neighborhoods are really second-rate (again, judging from what my own clients tell me about their experiences) — it may be that certification, by putting some sort of floor under what you’re getting, would help.

3 Trish June 19, 2009 at 10:21 am

The first licensing bill, so long ago, had an education provision budgeted in to make sure the public understood the that if they paid someone to prepare their return that person needs to sign the return. By signing the preparer couldn’t hide from the rules. I have always seen licensing as a way to educate the public in their rights and control the car dealers/pawn shops and the “kitchen table” preparers. I am very concerned at the conflict of interest too many of these preparers display. There are too many people who think a computer and tax software is simply a way to make money and don’t learn or follows what rules there are.
The idea behind licensing is good but it won’t be enough if there isn’t education of preparers and the public. Give the public the info they need to make good preparer decisions.

4 Jill June 19, 2009 at 11:06 am

I think certification would add an extra layer of protection for the consumer. However, I think, as a professional, I would like to see an exemption for people who can show that they are CPA’s, degreed accountants, or tax attorneys. We’ve already been to school, we have training above and beyond just tax, and we work in the industry all year (not just at tax time) so the thought of me having to go for MORE training to get a special piece of paper certifiying me to do taxes seems overly burdensome. But for someone that just wants to work for H&R Block or another “storefront” tax preparer – then yes, I would favor certification to protect the consumer.

5 Kelly June 19, 2009 at 11:34 am

Jill,
I think the bill would exempt professionals with certification requirements.

6 Lisa July 17, 2009 at 1:31 pm

Jill,

I don’t agree with you that CPA’s and Degreed Accountants should be exempt. I have been doing Taxes and bookkeeping for 20 years and have worked for CPA’s and yes even ran 2 H&R block office for 8 years. Not all CPA’s are up to date on the tax law changes because they usually only take a 8 hr update course per year. The one’s that I’ve worked with hated doing personal taxes but did because of the income it brought in. I agree with the certification process because I think it would help the taxpayer. As far as the cost if someone is going to be in the business of preparing taxes then they should have to pay for the cost of the course and the test. This is how the enrolled agent is done.

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