Thursday, June 04, 2009

IRS Ready to INCREASE (?!) Regulation on Tax Preparers (Be Scared, be very scared)

IRS Commissioner Doug Shulman has vowed to have a new set of regulations by the end of 2009 to assure "uniform and high ethical standards of conduct for tax preparers" as a tactic to increase tax compliance and decrease the "tax gap." Shulman stated that tax preparers should be ethical, qualified and provide good service. Shulman plans to meet with stakeholders such as enrolled agents, CPAs, software vendors and citizen groups while developing the regulations and hold meetings in Washington, DC and elsewhere this fall once the regulations are closer to complete.

A full response to this announcement would look like the "fisking" technique sometimes used in political blogs, kill off billions of electrons and might come out to the right of Tax Guru Kerry Kerstetter. A more restrained response is as follows: [1] Shulman's proposal, seen from the perspective of an academic with little or no actual tax preparation activity, looks like an insult to the large majority of honest, hard-working tax preparers. It is true that there has been a number of tax preparers in the news for bad conduct; at the same time, isn't racism effectively projecting the characteristics of a "few bad apples" onto an entire race. This feels like what is happening here, [2] the number of tax regulations and tax penalties have grown sizably since I last did significant quantities of tax returns in the 1920s, [3] Even Hubert Humphrey, a liberal icon of another day, realized that morality cannot be externally imposed. Ultimately, self-policing and shunning of bad behavior, perhaps combined with education on ethics, is likely to have the greatest effect on behavior--which leads to [4] the tax community is already self-policing and self-educating. The AICPA sanctions dozens of poorly behaving CPAs each year, blogs such as Taxable Talk and Roth CPA Updates show little mercy to wayward tax preparers and close to 40 states require continuing education in ethics (though admittedly not necessarily tax ethics). Perhaps Shulman will come to a reasonable and viable plan and I will have to eat some of these words, but I cannot have much initial enthusiasm for this proposal.


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