The IRS has begun to better track and test paid tax preparers. One of the requirements is to pass a test unless you are already an attorney, CPA or Enrolled Agent. I suppose the logic is that each of them have already passed a difficult test whether or not it is applicable to the subject.
My question is whether the IRS or any other interested party has considered the possibility that those who typically do taxes for low-income communities will not be able pass the test.
Maybe they did and the legislation even includes funding to help those folks get their taxes done.
I think the idea is that elsewhere, the preparers would be attorneys, CPAs, or Enrolled Agents already and would not have to pass the test in the first place.
Is there a cite on the testing program that the OP is referring to?
I’d assume that a large portion of tax preparers in low-income areas charge lower fees than those in higher-income areas (national chains such as H&R Bloc probably excepted). Because they’re collecting lower fees, it follows that they’re paying lower salaries to the preparers. If so, then it also follows that (generally speaking) the higher paying positions have the more qualified and ‘better’ employees, while those with with lower skills will end up in the lower-paying positions.
Again, this is a broad generalization with a few large exceptions, but overall I’d expect tax preparers in lower-income locals to be less reliable than those in higher-income locals.
OTOH, in low income locales you’d expect many customers to need just a simple 1040-EZ which they find beyond their limited ability to read, write, & cipher.
The expertise needed to correctly prepare a 1040-EZ for somebody with one W-2 is much less than the expertise needed to do a full-up 1040 with 20 pages of attached schedules.
The key thing the low-skill preparer needs is the discipline to tell either their manager or their customer “This is out of my depth. You need somebody else to help you.”
I’m not understanding what point the OP is getting at. It sounds like he/she is assuming the effect will be to clean out a bunch of non-competent commercial tax helpers & leave nothing in their place.
The implicit assumption seems to be that low income folks would be better off with incompetent help than no help at all. Or that somehow it’s the IRS responsibility to provide competent help once they clear out the incompetent commercially-provided help. I’m not sure that all follows.
Part of the reason for the IRS passing this new rule is to stop places like Block and other such places from scamming poor people who come into their businesses. Many of those types of tax prep firms are in tremendous hot water (legal and civil) because of their misrepresenting the preparers. At some of those places, all you have to do to be a preparer for them is to go to a Saturday class for 6 hours.
Anywho, I doubt this will negatively impact poor communities. If anything, this is good for poor communities because they wont have some fraudster doing their taxes for them. If you don’t have a basic knowledge of tax stuff, you shouldn’t be a paid tax preparer anyway. Speaking as someone who is a representative for people who have large tax problems, a huge subset of my client base are folks that used shady, unlicensed tax preparers and royally boned themselves.
Truly poor people will go to the low income tax clinics that have free preparers.
Frankly, this change is one that should have come years ago. My understanding is that large, every-shopping-center tax prep places have fought this tooth and nail, but it is definitely a move in the right direction.
Frankly, if you are using a 1040-EZ with one W-2 (or a number of W-2s and no other income and no abnormal deductions), you shouldn’t be talking to an unskilled tax preparer – you should be talking to a machine. At this point we should have automated kiosks that take a picture of your W-2s, OCR out the numbers, and print out your forms for your signature.
I recall hearing about a pilot program in California where people with simple returns got sent their forms already filled out (after all, the IRS already has the information from your W2s). If the taxpayer agreed with the IRS’s reckoning, he could accept the calculation, sign, and return the form. I also recall hearing that the program was cancelled after lobbying by the tax prep industry.
They were actually talking about this at a tax conference I was at a few months ago. This isn’t an H&R Block tax conference or something, but rather one for a very specific subset of tax professionals who deal more so in representation than tax preparation.
Anywho, it appeared that the universal opinion is that the program in question is a very bad, no good idea. As representatives, we see how frequently the IRS messes up even basic information for folks. Perhaps it’s a bit of a slippery slope argument, but you probably don’t want to give the IRS more power than they already have, since they can’t even get the stuff they’re currently doing right. Hell, most of the time, they don’t even have your W2 on file until several months beyond April 15th. In fact, their officially policy is that it can take up to 13 months for this to show up in their system. Then, you’d be surprised how frequently numbers are transposed, incorrect, or even entered multiple times on your payor information.
If your return is as simple as the type we’re discussing, though, it’s easy enough to go onto the IRS website, fill in the blanks, and submit a free e-filed return.
H&R Block and Jackson Hewitt both have around 80 hours of class time for new preparers which should be enough to pass the registered preparer test. This test won’t be as difficult as the enrolled agent test.
Also, I’m not sure that all preparers within an office will be required to take the test.
No legislation is needed to get basic tax returns done since any low-income people can file a free return on their own through the IRS website.
The IRS has free tax preparation clinics for low-income taxpayers already, and they can file free online using several different tools. I’m not sure how much more support the IRS can offer.
What these free clinics and online tools don’t offer are the rapid refunds. I hope that 2012 will be the last year we see any of these; the IRS has made it more difficult to offer them and many banks are pulling out. I’m always amazed at the number of people who will pay $200 in fees to get their refund 8 days faster.
In any event, I doubt that preparer regulation will do anything except cost honest preparers time and money. I’m a CPA, so the testing is a non-issue, but I still get to pay $63 a year for the IRS to re-issue me a PTIN number I already had.
Since most unethical tax preparers do not sign their returns, the IRS doesn’t know there was a preparer and will have a hard time enforcing anything. They’ll have to audit a taxpayer and hope the taxpayer rats out the unlicensed, non-signing preparer. But the IRS can already audit returns and can already penalize non-signing preparers. As a result, this preparer registration program is more bureaucratic saber-rattling that will not solve problems.
As mentioned, the level of knowledge needed to prep returns for lower income folks is not as extensive as the knowledge that will be tested. They could be adequately competent and still fail.
I don’t think it’s the IRS responsibility at all but there are legislators who will step up.
To be honest, I had the stories of promotion exams for Chicago fire fighters in mind too. Granted the community isn’t complaining they aren’t getting adequate fire fighting (I don’t think). The complaint are coming from the test takers.