Tax Preparer Regulation: Will It Work? Will It Survive the Courts?

IRS Commissioner Douglas Shulman has recently cast tax preparer regulation in the role of police monitor to ferret out fraudulent tax preparer behavior. Shulman stated at the National Press Club that he believed that such fraudulent behavior was uncommon, but needed to be attacked to make sure that taxpayers get value for their money. Shulman also argued that such regulation would pass Constitutional muster in its recent challenge by the Institute for Justice. Patricia Thompson of the AICPA was generally positive on tax preparer regulation, arguing that such regulation would promote better compliance with Treasury Circular 230, insuring that tax preparers prove their understanding of Form 1040 before being able to charge for tax returns and upgrading continuing education for all tax preparers.

I tend to agree with Shulman that the IRS will survive its recent legal challenge. I am considerably less certain that tax preparer regulation, in and of itself, will effectively deter tax fraud.