Who's Collecting the Juiciest Chunk of Your Taxes? The Government, or the Preparer?

How do you define "grownup"? For me, it was when I first realized that I would have to fill out and sign my income tax forms. And I hated it.

I'd read the instructions four times over, and despite an expensive undergraduate degree, the paragraphs made less sense the fourth time than they did the first.

Note that, at the time, I was using the 1040 EZ form.

So I totally understand why people hire tax preparers. In fact, we have a tax accountant prepare our returns, and it makes the whole process way less stressful.

But what makes me crazy now is that, if I wanted, I could hang out a sign saying that I'm a Tax Preparer.

In fact, only four states (Oregon, California, New York, and Maryland) require "tax preparers" to show that they have any relevant skills or knowledge. And while most preparers do their best for their clients, there are all too many whose motivations are shadier.

And guess who those unregulated preparers are most likely to target? You got it: those least likely to make an educated judgment about which preparer to hire.

Today's New York Times has two articles that, combined, made me mad.

The first, by Campbell Robertson, explores how some preparers fleece the unsuspecting [full article, here].

For millions of low-income Americans, tax season means the biggest one-time influx of money all year. It also means the annual sprouting of commercial tax preparers: some of them big-name franchises, some mom-and-pops and some... shockingly expensive.....

[W]ith almost no regulation in the tax preparation industry and a tax code that is forbiddingly complex, the billions flowing into low-income households this time of year, primarily in the form of the earned-income tax credit, present a ripe target for the unscrupulous.

Too many low-income households are paying hundreds of dollars for returns that are often inaccurate. And those taxpayers have no idea what they should have been charged.

In 2009, the Internal Revenue Service introduced a plan to require tests, continuing education and registration for tax preparers. Some professional groups and tax preparation businesses, like H&R Block, supported the rules, but many small tax preparers denounced them as unfair and protectionist.

Given the complexity of the federal tax code, and the constant change in regulations, why wouldn't you want a continuing-education requirement? Hmmm.Well, there are apparently some "philosophical" objections, as reported in today's op-ed piece by Alex Levy:

In 2011, the Obama administration introduced regulations requiring tax preparers to pass a basic competency test, undergo a criminal-background check, pay an annual registration fee, and keep current on tax law through continuing education. But the Institute for Justice, a libertarian group partly funded by the Koch brothers, challenged the regulations in court. The case is part of the institute’s continuing campaign against occupational licensing requirements, which they view as a threat to economic liberty.

A threat to economic liberty? Really? How about the threat to the consumer? After all, if the IRS discovers fraud in my return, I'm the one who's going to go to jail.