Wednesday, September 25, 2013

Keep the IRS out of my tax preparation

The title here sounds a little strange, so let me explain.

I found this headline on Reuters this morning:

The story deals with the fact that the IRS wants to regulate the tax preparation industry. That is, they want all tax preparers to be certified, registered, licensed, what have you.... so that they may pass competency tests and be required to take "continuing education" courses.

Now this all sounds very good and high-minded. But that's the problem with all brain-dead authoritarian laws... they sound very good. But I have some serious problems with it.

First of all, the IRS is not authorized to do that. This is why they've gone back to an 1884 law that has nothing whatsoever to do with tax preparation or the IRS in order to attempt to justify their actions.

Secondly, the law they're using isn't applicable. It deals with those who are representing you before the government, not those who are performing a service. The IRS claims that preparers perform largely the same function as described in that law, but largely the same isn't the same, and the differences are important. Here, the tax preparer does not represent their customers at all. Here are their allowed duties as described in Treasury Department Circular No. 230 (pdf):
Practice as a registered tax return preparer is limited to preparing and signing tax returns and claims for refund, and other documents for submission to the Internal Revenue Service. A registered tax return preparer may prepare all or substantially all of a tax return or claim for refund of tax. The Internal Revenue Service will prescribe by forms, instructions, or other appropriate guidance the tax returns and claims for refund that a registered tax return preparer may prepare and sign. - § 10.3(f)(2)
They go on to say that this registered tax return preparer can "represent" you before the IRS. They use the language, but that's not how it works in practice. Your tax preparer accompanies you to the IRS to answer question specifically about how the return was prepared, but there's no actual representation implied.

Furthermore, this regulation limits the sort of things your tax preparer may discuss with you:
A registered tax return preparer’s authorization to practice under this part also does not include the authority to provide tax advice to a client or another person except as necessary to prepare a tax return, claim for refund, or other document intended to be submitted to the Internal Revenue Service. - § 10.3(f)(3)
In other words, he can fill in the forms. He can tell you how to report your deductions properly, but can't advise you as to whether you can or cannot deduct any particular expense. That is the extent of his authorized "representation."

I have a major problem with the very concept of the IRS controlling the person I'm paying to prepare my taxes. How can a tax preparer critically approach the job when his livelihood depends upon performing it to the Government's "standards"? How does he point out that the government is wrong when they're empowered to take away his job if he doesn't perform to their satisfaction? In my opinion, the conflict of interest could not be clearer. It would seem obvious that this regulation will work against the public interest by resulting in over-payments to the IRS which would have been avoided if the tax preparers were not highly motivated to cover their own asses rather than apply the tax code as it actually stands.

Also,  the IRS requirements add to the cost of tax preparation. Those who are able to do their own taxes do them, but those who can't find themselves burdened with higher fees. Of course, those fees feed the government. The IRS has no interest whatsoever in whether you're paying the right amount of taxes; they are only concerned with whether you are paying "enough" taxes. There's a big fat difference. This entire regulation appears to be geared toward making it as difficult as possible for a lay person to intelligently apply the tax code without wading through thousands of pages personally or engaging in exorbitant expense; and as easy as possible for the government to snow you in an audit. To me, it looks a lot like thieves tilting the rules in their own favor.

Here we have a government agency taking it upon themselves to enact "regulations" that have the force of law and levy "fees" that have the force of taxation when they have NOT been empowered to do so. This should NEVER be the case. No agency should be able to levy any fee whatsoever without express legal authorization.

Of course, the IRS have already passed regulations that "require" tax preparers to comply with their desires, but most of these were stayed by court order earlier this year, and the arguments were heard Tuesday. Let's hope the Institute for Justice's arguments prevail.

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