Video of Congressman Sherman in Action
That's good news. But the agency is going overboard
By Brad Sherman and Michael Conaway
The Wall Street Journal
August 26, 2010
The IRS is out to do something nice for us by ensuring we get quality help when we hire someone to prepare our tax returns. Unfortunately, parts of this laudable effort may be too much of a good thing. By going too far, too fast with more regulation than necessary, the IRS will add needless burden and expense. The agency's goals could be achieved more cheaply and efficiently without stretching its enforcement resources so thin.
Proposed IRS rules would properly address a regulatory gap by requiring all paid tax-return preparers to register for a "preparer tax identification number" (PTIN). This will enable the agency to track their work and find them when problems are uncovered.
Tax attorneys, certified public accountants (CPAs) and enrolled agents already are subject to extensive oversight and testing at both the state and federal levels. But a vast army of others operate with little federal or state supervision and may have little formal training. No independent cop on the beat protects taxpayers from the unprepared preparer. The proposed registration program would bring unregulated preparers within reach of the IRS, enabling it to identify those with a pattern of shoddy work, and, if necessary, act to protect taxpayers. That's the good news.
But the effort is flawed by plans to apply it too widely—going beyond the "signing preparer" (the person who directs and reviews the work and then signs the return) to basically every person who may touch a return.
This approach could require more than a million registrations nationwide, including legions of "nonsigning preparers" at CPA firms that are already subject to intense scrutiny and penalties by state accountancy boards and the IRS. Requiring a PTIN for nonsigners is regulatory duplication that will create volumes of additional paperwork and expense to be passed onto taxpayers—without providing any added protection.
In another exercise in excess, the IRS plans new competency tests for all newly registered preparers. The tests would even cover CPA firm employees who are closely supervised by CPAs, heavily regulated by the states, and often have passed or are about to take a rigorous CPA exam.
Taxpayers would be better served by more targeted rules that distinguish among those with different training. The rules should waive PTIN and testing requirements for nonsigning preparers at CPA firms. Such an approach would eliminate unnecessary costs and encourage the IRS to focus on initiatives that best protect the public.
What's more, the narrow tests planned by the IRS will likely cause confusion by suggesting to some taxpayers that all preparers have equal training and credentials. Explaining the distinctions would require a costly public educational effort.
Rather than racing to test, the IRS should consider a phased approach—implementing the PTIN program and assessing its impact before requiring new testing. Issuing the PTINs and extending IRS disciplinary rules to all registrants, including the estimated one million preparers who have not been covered before, may be protection enough. Armed with the ability to track and discipline incompetent tax preparers through the new registration system, the IRS may find its stated goals are met.
The IRS and its Commissioner Douglas Shulman have earned our appreciation for striving to ensure the competency of those who help Americans with their tax returns. But the IRS will put its own good work at risk if it tries to do too much too soon with excessive and duplicative regulation of those—such as CPA firms, tax attorneys, and enrolled agents— who are already covered by strong and effective oversight.
To maximize effectiveness, the IRS should close the obvious gaps first. Only later, after careful empirical study, should it determine if any additional regulations on preparers are warranted.
Mr. Sherman, a CPA, is a Democratic congressman from California. Mr. Conaway, also a CPA, is a Republican congressman from Texas.
