Tuesday, January 05, 2010

The Tax Racket

Karen DeCoster has a post at the LRC Blog regarding new regulations for tax preparers. The original article is from the Wall Street Journal. It states:

"Under the new rules, employees of chain tax-preparation firms including H&R Block Inc. and Jackson Hewitt Tax Service Inc. will be required to pay a registration fee to the IRS, pass a “competency” exam and have 15 hours of education a year. Previously these employees weren’t required to meet federal standards.

The requirements also will apply to hundreds of thousands of independent preparers and mom-and-pop storefronts that offer tax preparation as one of several services. About 60% of U.S. taxpayers use tax preparers, according to the IRS. That number includes certified public accountants, or CPAs, who are already subject to professional standards and aren’t covered by the new rules.

…starting in 2011, all paid tax preparers will have to register with the IRS and include a unique identification number on any returns they prepare. Preparers will be given three years to pass a competency exam in either individual or small-business taxation."

Some may be surprised to learn that H&R Block and Intuit both lobbied in favor of the regulations. At first this may seem counter-intuitive, but this is a perfect example of corporatism. Both companies are are leaders in tax preparation and stand well prepared to pay extra fees which will make it more difficult for smaller, independent firms to compete.

Here is DeCoster's conclusion, which says it all:

"I have a little tidbit for readers: Mark Ernst resigned as CEO of H&R Block in 2007, and where did he land? He is a Deputy Commissioner at the IRS.

I found this quote quite remarkable, coming from an enrolled agent who sees “unregulated” tax preparers as being bad for his business (because they offer competition at lower prices): ”We want to make this into a profession, not just a part-time thing you set up on the kitchen table for six weeks during the tax season.” Let’s see, the tax season is about three months long, and that means? Most paid preparers are part-time for that very reason. Many are homemakers who only want to work for part of the year, and many, like some of my non-CPA, business colleagues, do tax work to supplement their income. Many of these folks will be driven from their part-time jobs.

I’ll leave you with a comment from a WSJ reader: ”How about fixing the tax code so we don’t need tax preparers?” Easy answer. Because government works to empower large, wealthy special interest groups and enables them to profit handsomely from its massive web of taxes, codes, and regulations that enslave powerless American citizens within the omnipotent corporatist state."

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