Occupational Licensing for Tax Preparers Proposed in Congress

Published February 19, 2016

Lawmakers in Congress have introduced a bill that would authorize the Internal Revenue Service to enact occupational licensing regulations for tax preparation agents.

If approved by Congress and signed into law by President Barack Obama, the Tax Return Preparer Competency Act (TRPCA), sponsored by U.S. Reps. Diane Black (R-TN) and Pat Meehan (R-PA), would require professional tax preparation agents to pass a series of federal examinations, meet federal standards for continuing education, and pass government law enforcement background checks.

Tax preparers are already required for tracking purposes to register with the Internal Revenue Service (IRS) in order to obtain a preparer tax identification number (PTIN).

‘Ghost Preparers’

Dan Alban, an attorney with Institute of Justice, a public-interest law firm, says more regulations are not the way to stop black-market activity.

“The real problems in terms of fraudulent tax preparers are largely with so-called ‘ghost preparers,’ who don’t register with the IRS or obtain a PTIN and are thus operating outside the law in a black market,” Alban said. “They prepare someone’s returns as though that person prepared their own return, which makes it very difficult to track them. Licensing completely fails to address the problem of ghost preparers and would likely decrease the number of tax preparers, [because] independent preparers are pushed out of operating openly by the costly barriers to entry.”

“There is no indication that a licensing scheme would do anything to address the issue of tax fraud,” Alban said. “Unscrupulous preparers can take tests and continuing education just as well as honest preparers. In fact, unscrupulous people are perhaps more likely to be able to get licensed by cheating or fudging the paperwork for their continuing education.”

Regulatory Capture?

Diane Katz, a senior research fellow with The Heritage Foundation, says legislation such as TRPCA favors big businesses over small entrepreneurs.

“This does illustrate how some firms benefit from regulation, and thus pursue it,” Katz said. “Licensing would create a barrier to entry for tax preparers. H&R Block could withstand the costs of licensing far easier than new or smaller firms, and it would benefit [the big firms] if there were fewer tax preparers in the market.

 “I do not see any benefits,” Katz said. “If Black and Meehan are so concerned about the competency of tax preparers, they ought to advance legislation that forces the IRS to correct its own 20–30 percent error rate and reduce the complexity of the tax code.”

Leo Pusateri ([email protected]) writes from St. Cloud, Minnesota.