Back to School: Group Files Suit to Stop Continuing Education and Exam Requirements for Paid Preparers

Quality Control

Stronger regulations will mean higher quality tax returns

This week, a group called the Institute for Justice filed suit against the Internal Revenue Service (IRS) for new regulations being implemented regarding paid tax preparers.  The self-described “libertarian, civil liberties, public interest law firm” says the regulations are unfair to paid preparers. We disagree.

NCTC actively advocated for and has supported stronger regulation of paid preparers for quite some time. The new rules for commercial preparers, which started last year, were a huge victory for consumers. We believed then and now that taxpayers – particularly those with low incomes – should have access to competent, well-trained tax preparers, whether at a VITA site or a commercial office.

The new rules require most paid preparers* to:

  • Pass an IRS-issued competency exam
  • Take continuing education classes to keep up with tax law changes
  • Renew their Preparer Tax Identification Number annually

Each year, VITA volunteers must participate in hours of training and pass a competency exam. Why should paid preparers be any different?

Consumers who pay steep preparation fees – often more than $400 – deserve a quality product, in this case to have their taxes done accurately. Considering an inaccurate return can also result in legal consequences and fines, accuracy is even more important.

The new rules are a great step toward preventing many of these problems. The regulations will:

  • Prevent continued loss of income tax revenue that results from inflated refunds and under-reported liabilities.
  • Track problem preparers who stretch the limited resources of state and federal tax enforcement offices.
  • Provide critical consumer education and resources to refer taxpayers to qualified tax preparers and protect their rights as taxpayers.
  • Protect taxpayers from fraudulent and misleading marketing schemes that disguise preparer qualifications and conceal the true cost of services and loan products.
  • Maximize the effectiveness of refundable tax credit programs that are critical to the nation’s most financially vulnerable populations.

For many low-income families, a tax refund is the one chance each year they have to pay down debt, save for an emergency or replace a broken household appliance. High preparation fees and inaccurate returns can negatively alter their refunds, setting families back even further.

Some commercial preparers say the regulations will make it harder for them to do business. But this is an industry that makes millions, if not billions, of dollars each year. Our highest priority must be on consumers, their protection and well-being.

*CPAs and attorneys are exempt. For more detailed information on the regulations, visit the IRS website.

By Dan Fair, Manager of Communications & Member Relations

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About National Community Tax Coalition

National Community Tax Coalition (NCTC) is the nation's largest, most comprehensive membership organization for community-based organizations offering free tax and financial services to low-income working families.

Posted on March 15, 2012, in NCTC and tagged , , , . Bookmark the permalink. 7 Comments.

  1. I agree with the stance of the IRS. As a VITA volunteer I am required to pass a competency exam to be able to prepare tax returns for the public. The standards should be the same for anyone handling tax returns. I understand the complaints of the commercial preparers, however, they are charging outrageous amounts for a service that anyone can do on their own. I have also seen first hand the costly mistakes made by some of these commercial preparers that have not kept up on the current tax code. In one instance, costing a family several thousand dollars. The tax code is constantly changing and anyone who claims to be a tax professional should be held to any standard the IRS requests.

  2. Why don’t the VITA volunteers and the paid preparers have the same requirement?

  3. “Each year, VITA volunteers must participate in hours of training and pass a competency exam. Why should paid preparers be any different?”

    Among other reasons, because it is ineffective at reducing error rates and just imposes costly barriers to entry for independent preparers (which are then passed on to their customers).

    Despite the VITA testing and education program, a 2011 audit by the Treasury Inspector General for Tax Administration found a 61 percent error rate in a sample of tax returns prepared by VITA volunteers. See “Accuracy of Tax Returns, the Quality Assurance Processes, and Security of Taxpayer Information Remain Problems for the Volunteer Program”
    http://www.treasury.gov/​tigta/auditreports/​2011reports/201140094fr.pdf

    You express concern about “high preparation fees,” but this licensing scheme will only make those fees grow larger. There is no such thing as a free lunch. Regulations impose costs on preparers which are passed onto consumers in the form of higher fees. These compliance costs also force some preparers out of the market, which again raises prices due to the reduced competition. (That’s why large tax prep firms like H&R Block supported the regulations – the costs of compliance drive out smaller competition.)

    Independent preparers typically charge lower fees for tax return preparation than the large tax prep chains, but they are dispropotionally impacted by these regulations and will have to either significantly raise their prices or go out of business. Two of our three plaintiffs in this case serve low-income clients and charge subsantially less than big tax prep chains. For instance, Elmer Kilian of Eagle, Wisconsin is a retiree who has been preparing taxes for over 30 years; he charges only $40-45 for an average tax return. He’s never had any problems with the IRS regarding returns he prepared. He would have to substantially raise his prices in order to cover the costs of complying with the new regulations. He can’t do so in good conscience, so he’ll close his tax prep business rather than comply with the new regs. His former customers will then have to find a new tax preparer, likely a big tax prep firm that will charge several times what they’re used to paying. Ask Elmer’s customers whether these regulations help them or hurt them.

  4. While the TIGTA report certainly highlighted some concerns for our field and we’ve already implemented changes to address them, the report itself makes clear on page 6, “the accuracy rate {of the 36 returns examined} should not be projected to the entire population of tax returns prepared at the Volunteer Program sites.” It sampled only 36 of the more than 1.3 million returns VITA volunteers prepared for free that year.

    A more accurate indicator is the IRS internal study (QSS Report), which sampled more than 700 returns, and confirmed that the accuracy rate for preparing individual 2010 tax returns rose two percentage points from the previous year to 85 percent.

    The report also shows that with improved training, the accuracy rate of VITA-prepared returns has steadily increased. With the recent rash of tax preparation schemes and scams, it holds true more than ever that paid preparers need to be more competently trained and tested.

  1. Pingback: Yet More Evidence Paid Preparer Regulations Are Necessary (and Working) « WorkForward – Official Blog of the National Community Tax Coalition

  2. Pingback: Paid-prep rules encounter a bump in the road « WorkForward – Official Blog of the National Community Tax Coalition

  3. Pingback: Pre-Paid Tax Rules-A Bump in the Road | Asset Independence Coalition

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