IRS to Regulate Tax Preparers: How Much Will This New Regulation Cost You?

With tax season fast approaching, who will do your taxes? If it isn't a registered tax preparer, as of 2011, you may need to find a new one. The IRS has found yet another way to encroach on the lives of responsible citizens by implementing a law that will require tax preparers to pass a test and register with the federal government. IRS commissioner Doug Shulman says this new regulation will protect ordinary citizens from inexperienced or scandalous tax preparers who offer bad tax advice and put their clients at risk for tax fraud. While this new regulation sounds good on paper-after all, scandalous tax preparers are bad news-in reality, this new regulation will put many good tax preparers out of business and force many tax payers to find alternative, potentially more costly, tax preparation services.

For example, my husband and I run a limited liability company, which means that we are responsible for a large number of taxes and filling out tons of convoluted paperwork. Fortunately, we have a family friend who happens to be an accountant. She holds an accounting degree and more than 30 years experience doing taxes for friends and family. In the past two years, she has taught us enough about our tax liability that if we had to, we could potentially do our taxes on our own, a benefit we would not have gotten from H&R Block. Additionally, she charges us significantly less than H&R Block would, which as a small business with small profits, is a godsend. In 2011, we will no longer be able to use her services, if it isn't financially advantageous for her to pay for the 15 hours of annual training and register.

At one point, our tax preparer was wrong about a federal tax and we ended up having to make a late FUTA payment, which incurred a penalty fee of about $30. As an active tax payer, I found this particular tax on my own and brought it to her attention. Tax preparers aren't perfect. Even IRS representatives don't always know their stuff. Requiring them to take 15 hours of education per year may reduce the amount of errors, but at what cost to us?

According to the Huffington Post, "lawyers, certified public accountants and enrolled agents will not be affected by the new regulations." Those who will be affected are the knowledgeable individuals who help tax payers on a part-time basis, many of whom may either hold an accounting degree or have some other legitimate experience, such as our family friend.

While some regulation can be a good thing and standards are generally preferable, requiring accountants to register in order to continue preparing taxes is simply stifling. For one, many of these uncertified accountants hold accounting degrees and have been working for decades, offering their services to small businesses and individuals who don't want to pay H&R Block or who would rather be able to learn the tax process as well. For two, as it is, tax preparers are required to sign off on any tax returns that they prepare, meaning an adequate means is already in place for identifying tax preparers. Additionally, nothing is stopping scandalous tax preparers from registering. For three, it isn't up to the federal government to protect us. Individuals are free to require references from their tax preparer or double check their work via Google.

If the tax code is so complicated that we now need to require tax preparers to take annual training, why not simplify the tax code so that even Timothy Geithner can understand it?

Source: Huffington Post, IRS to Regulate Tax Preparers, Jan 4, 2010