More About the Licensing of Tax Preparers

Jim Gallagher over at the Post-Dispatch had a nice column about the question of whether to license tax preparers, as was proposed recently by the IRS and mentioned on this blog. The best thing about this article is that it at least poses the question of how the licensing costs will affect the industry. Other recent stories about licensing that I have seen fail to even consider the idea that licensing can cause costs to rise at all. The only bad part of the column is the insulting title:

“No skills needed to be a tax preparer”

But it may be that the editors chose the title, so we can’t necessarily blame Gallagher for that.

Not surprisingly, current owners of tax preparations companies support the proposed nationwide licensing:

“It’s a great thing. It will hold accountability to tax preparers,” says Salah. “They’ll know what they’re doing. There are lots of tax preparers who are not qualified.”

Of course, it is always those who currently hold an occupation who support licensing that occupation, because it helps prevent future competition. The vast majority of licensing laws are enacted as a result of lobbying pressure from current practitioners of the occupation in question. Recent successful efforts to license interior designers and massage therapists in Missouri are examples of that phenomenon.

But at least Gallagher understands that these types of plans entail costs and harms that might not be obvious at first:

The story may be different for the bookkeeper-turned-homemaker who does tax returns on her (or his) dining room table. Some may find another way to earn money.

People who find themselves in a similar situation to this example should be allowed to do this type of work for as long as people voluntarily choose to hire them. If they do a poor job and their customers keep getting penalized as a result, people will stop hiring them. What’s more, just because you hire a tax preparer does not mean you don’t bear the responsibility of your return being accurate. I like the comment by the CPA at the end of the article:

“I am a retired CPA. It is amazing the number of people who could prepare their rather easy return choose not to. Usually their answer is I may make a mistake. The mistake that we have all made is electing people who have given us a tax law that is impossible to comply with. This is not a political statement but a fact.”

Well said.