Because the IRS Loves You

Now that we’re into the New Year, tax season is just ahead.  So, I was thinking recently about a report I heard on NPR last year that the Internal Revenue Service has announced that it intends to allow only “certified” tax preparers to advise Americans on how to prepare and file their tax returns.  When I heard this, I couldn’t help but be reminded of what is often cited as the World’s Biggest Lie—you know: “I’m from the Government and I’m here to help you.”  I doubt this is a case of America’s most-hated government bureaucracy trying to make us think that deep down inside they’re really just a bunch of kind-hearted softies who, on occasion, just need a hug.  More likely, it is a government agency trying to grow in size and reach.

While I’m sure there are a few cases of unscrupulous tax preparers charging exorbitant fees to ignorant and unsophisticated filers, I can’t imagine how this action would make very many of us better-off.  The report noted that this ruling would seek to regulate tax advisors who hang a shingle in March and disappear after mid-April.  Apparently, there are about a million of these illicit services who encourage filers to make false claims on their returns in order to inflate refunds, then collect their fees based on the size of that expected refund and close shop before the unwitting filer learns the hard way that his refund is smaller than he claimed on his return.

There are legions of perfectly legitimate tax preparers who don’t need government credentials (and who would, conveniently, be exempt from this rule).  Tax attorneys and accountants are plentiful and are bound by industry standards that far exceed IRS certification.  They also have too much invested in their careers to risk the deceitful behavior outlined above.  Plentiful, too, are tax preparation services like H & R Block.  These firms are easy to find in the poorer neighborhoods that are most likely serviced by the low-life preparers and least likely served by lawyers and CPA’s.  Block would also lose plenty if its valuable brand name were sullied by the implementation of such shady business practices.

As if to add some comfort to those who might soon struggle to find tax-prep assistance, H & R Block released a statement saying that this new rule would likely benefit consumers, by raising the standards for preparation services.  This shouldn’t surprise anyone since the IRS would require its certified vendors to earn continuing education credits each year.  But, while this may raise the quality of service in the industry, it will certainly create barriers to entry that will reduce the number of  Block’s competitiors and will probably make the company more profitable.

I also couldn’t help but wonder about how innocent these lambs may really be.  I believe that few people are truly unaware that the IRS has no sense of humor when it suspects one is trying to cheat on his taxes.  More likely, these filers are people who are quite happy to cut a few corners on their returns—after all, as they’re told constantly by the media, the rich cheat on their returns and avoid paying their fair share.  Some may even seek out these less-reputable preparers because of their willingness to cut corners.

If the IRS or Congress truly wants to benefit taxpayers and end the scams that they claim this program would prevent, they need not spend billions creating a new bureaucracy to develop and administer the certification process.  They might start by simplifying the tax code from its current 8,000+ pages to something more comprehensible.  Or, they might altogether eliminate the need to file tax returns by adopting a flat tax or the Fair Tax.  But, since I doubt any of these ideas will be adopted anytime soon, I fear what type of “…I’m here to help you” is coming our way next.

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