Congress Considers Bill To License Tax Preparers, But It May Not Be Effective

Tax Forms

Taxes are due next month, which means it’s crunch time for many Americans. For over 50 percent of Americans, this means hiring the services of tax preparers. With the complexities of taxes, many families may feel it necessary, or worth the cost, to hire a professional to do their taxes for them. The problem is that tax preparers have a history of being inaccurate, and inaccuracies can mean an unexpected adjustment to your return — or even an audit.

The other problem is that the U.S. tax code is incredibly complex. So complicated is it, in fact, that a majority of members of Congress hire professionals to do their taxes for them — and they’re the ones writing the tax laws. The complexity of the tax code is what causes many people to hire help, and what causes that help to still be riddled with errors. It’s also what caused Former Defense Secretary Donald Rumsfeld to write a letter to the IRS in 2014, stating that the code was so confusing that he could not have confidence that everything was correct.

“The tax code is so complex and the forms so complicated, that I know that I cannot have any confidence that I know what is being requested and therefore I cannot and do not know, and I suspect a great many Americans cannot know, whether or not their tax returns are accurate. As in past years, I have spent more money than I wanted to hire an accounting firm to prepare our tax returns and I believe they are well qualified.”

In a secret test performed by the Government Accountability Office in 2014, people who prepared their own taxes had roughly 10 percent fewer errors than tax preparers.

A new bill called the “Taxpayer Protection and Preparer Proficiency Act of 2015” aims to combat this by giving the IRS the power to license and regulate tax preparers. The bill is being proposed by Democratic Senators Ron Wyden and Ben Cardin.

At its core, the bill aims to “reduce fraud and ensure competence,” but it does so by making sure that tax preparers are following the current tax code, which many argue is the problem to begin with. In an article on The Wall Street Journal, Justin Gelfand and Dan Alban argue that giving the IRS these powers would do little to combat inefficiency and errors, and do even less to stop fraud.

“Simply put, requiring tax preparers to first obtain an IRS-issued license will not stop someone willing to commit serious felonies any more than requiring driver’s licenses stops getaway drivers from participating in bank robberies.”

It’s a fair point that taxpayers shouldn’t have to rely on tax preparers who may make more mistakes than they would if they prepared their own taxes, but it’s unclear whether regulation is the answer. It could be, but what really matters may be how such regulation is enforced, not how it is written. Whether the bill passes or fails, however, simplifying the tax code shouldn’t be taken off the table. It’s equally fair to posit that fraud and errors are so rampant due to the system’s complexity, which has been a longstanding issue.

If the bill passes, tax preparers may have to undergo training to bring themselves up to date and get the license they need to continue business. While this could be seen as a positive thing, it could also mean expenses being passed on to anyone wishing to hire their services. On the plus side, free filing options are still available for many Americans.

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