by Elisa Meyer on 2017-07-06 4:22pm
The regulation of tax preparers is an interesting landscape. Although four states (Oregon, California, New York, and Maryland) have education requirements for tax preparers, the rest don’t.
That’s right, 46 out of 50 states don’t have education standards that must be met to professionally file taxes. While many tax specialists have completed education which qualifies them to work with taxes, there is no certification requirement to call yourself a “tax preparer”. The IRS provides this table outlining requirements for various kinds of tax preparers.
Those considered “tax practitioners” do have certifications, and unlimited practice rights before the IRS: tax attorneys, CPAs, and enrolled agents. Enrolled agents are approved by the IRS, must pass a three-part exam to be credentialed, and are required to complete 72 hours of continuing education every three years. Annual filing season program participants (AFSP participants), a step below enrolled agents, have continuing education requirements for tax preparation, and must pass a test each year. Compared to enrolled agents, their representation rights are more limited, but due to their continuing education on tax preparation, they are reasonably qualified to complete tax returns.
Those considered “unenrolled agents” have no particular credentials to be a tax preparer. In a study released in 2014 by the US Government Accountability Office (GAO), they found that unenrolled paid commercial tax preparers made “significant errors”. In fact, out of 19 randomly selected preparers in non-regulated states, all 19 made errors during GAO’s undercover study.
Unenrolled preparers account for 55 % of tax preparers, so that’s a lot of potential for error. When this happens, the taxpayer is still responsible for paying any monies due, including paying back that nice big refund check. The tax preparer is also subject to charges such as “understatement due to willful or reckless conduct”, which can be accompanied by stiff penalties.
In August of 2008, the GAO also tested the accuracy of tax returns filed by Oregon tax preparers, who are regulated by the state and have stringent requirements. Their findings showed:
“...that the odds that a return filed by an Oregon paid preparer was accurate were 72 percent higher than the odds for a comparable return filed by a paid preparer in the rest of the country.”
That’s a pretty big difference that could save the IRS a lot of auditing hours.
Although there have been moves to increase the amount of regulation and oversight for tax preparers, these have been stymied by debate over which organizations have the authority to implement them. In 2013 the U.S. District Court ruled that the IRS does not have the right to regulate tax preparers, and in 2014, the U.S. Court of Appeals affirmed that ruling.
In May of 2017, President Trump submitted his proposed budget, which included a plan to authorize the IRS to regulate all tax return preparers. While we don’t yet know if the budget will be approved, given the buzz over tax preparer certifications in the past few years, it seems certain we can expect more regulations in this arena to emerge sooner or later.
Whether or not this is a good thing will depend on the extent of the regulations. Requiring extensive and costly education for tax preparers has the potential to hurt small businesses and self-employed tax preparers by cutting into their time and profits.
However, the requirements that enrolled preparers and AFSP participants are subject to are not excessive. Such reasonable minimum continuing education for tax preparers, offered by affordable providers, could protect individuals and increase IRS efficiency by decreasing the amount of errors on tax returns - without harming small businesses.
Elisa Meyer is a researcher and original content creator for TaxCE.com, a company offering accessible online continuing education in tax preparer certification, real estate licensing, and more.