New IRS Rules Kick In, Leaving Mom-and-Pop Tax Preparers in Limbo


tax forms

The country managed to avoid the dairy cliff and the fiscal cliff (more or less), but it looks like we are in midair after falling off the tax preparation cliff. 

At the end of last year, I blogged about new Internal Revenue Service (IRS) rules that require small-time tax preparers to pay annual fees, take IRS exams, and obtain 15 hours of expensive continuing education.  Attorneys and certified public accountants are exempt from the requirements, and big tax firms like H&R Block actually backed the regulation, which will put many of their seasonal competitors out of business.

The economic litigation firm, Institute for Justice (IJ), filed a suit in March on behalf of several tax preparers with the U.S. District Court for the District of Columbia. But the new rules kicked in while they were still waiting for a ruling.

That leaves up to 350,000 mom-and-pop operations with an uncertain future. It is too late for them to comply with the law's continuing education requirements. But the court could rule any day, making it theoretically possible for them to accept clients this tax cycle.

I checked in with IJ attorney Dan Alban to see how his clients were doing. Not great, he says:

The uncertainty over whether the IRS's unlawful scheme will be struck down is bad for tax preparers, many of whom are unsure about whether they'll be able to continue preparing tax returns in 2013 and beyond.  They are struggling with what to tell their regular customers as tax season approaches.  And it's bad for taxpayers, many of whom don't know if their longtime tax preparer will still be able to legally prepare their taxes this year.   This is yet another reason why taxpayers—not the IRS—should be the ones who decide who prepares their taxes.

There is a loophole in the law that exempts people who prepare returns for free from the onerous licensing requirements. Some folks who prepare tax returns on the side are considering offering their regulars returns for free this year in a bid to keep their source of supplemental income viable for the future.

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  1. Killing small business with a stake, one industry at a time.

  2. How many jobs saved or created is that now? I’ve lost count.

    1. These aren’t people employed in “jobs”, dude. They are profiteers who have been restrained from their illegal activities by the proper allocation of benevolent government force.

  3. Sell people a rock for $X and do their tax prepping for free.

    1. Do you seriously think the IRS will be deterred by technicalities? They’re dressing up the storm troopers as we speak to raid your house for the unlicensed financial advice you just dispensed.

  4. Why does it seem like the IRS, TSA and DEA are in a contest to see which agency can be the most cartoonishly despotic and incompetent?

  5. This is a bigger problem than many people realize.

    Not only will many of these preparers be out of a substantial portion of their income this year. They risk losing a huge portion of their clientele for the next year.

    Mom and pop tax filers rely heavily on loyal clients.

    1. Or this just becomes another black market in our economy.

  6. Just another reason to heat up that tar and pluck those feathers. I think we’re pushing 5 digits on the number of reasons.

  7. Good to know that being an attorney or CPA automatically makes you a tax expert. So the HR attorney at work can moonlight preparing taxes without going through hoops, but a mom and pop who have done this for a living can’t. Oh that’s, right Congress is made up of attorney’s.

  8. Wow, I never thought about it liek that before dude.

  9. How is it too late for them to comply with the continuing education requirements? Are the 15 hrs. required to be spaced out over months or something?

  10. And why is it any more expensive for individual operators to comply with these requirements than it is for H&R Block, when they apply per preparer, not per firm? It’s not a fixed cost that a larger firm can spread over a greater number of personnel. I don’t see this as favoring the large over the small, although it does favor lawyers & CPAs.

    1. H&R Block typically has greater customer volume, making it easier to recover the compliance costs. Larger firms always receive an advantage over smaller firms when dealing with mandatory hurdles, contributing to barriers to entry.

  11. Hey, all those small-timers just need to donate to Obama’s second inaugural celebration so that they can have special access to His Eminence. Lord Obama, KIng of Kings – or was that King of Con Artists, Beggars, and Thieves?

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