Timothy P. Carney: Big tax-prep companies welcome IRS regulation

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The Internal Revenue Service has proposed new regulations on paid tax preparers, and the biggest companies in this business have quickly responded -- roundly endorsing the new regulations, whose primary effect may be to kill off their smaller competitors. H&R Block's recent chief executive officer, appointed deputy commissioner of the IRS by President Obama, participated in crafting these new regulations, which benefit his company.

The proposed rules would require all paid tax preparers to register with the IRS, pay fees, pass government tests, and fulfill continuing education requirements.

H&R Block's top lobbyist Kathryn Fulton told Bloomberg "we welcome the move." The other big tax-prep companies also back it, Bloomberg reports.

"We support this IRS initiative to improve and increase compliance standards, requirements and expectations for the individual income tax return preparer community," said Sheila Cort of Jackson Hewitt. And Liberty Tax Service, "created testing requirements for its preparers in anticipation of the IRS action," and thus will see no new costs from the regulations.

So the regulations add to the cost of doing business, but the big guys can afford these higher costs, and, in fact, are already paying to comply. If these added efforts are valuable to consumers, then H&R Block and Jackson Hewitt should just publicize how careful and thorough they are in training their preparers.

But maybe the market doesn't value H&R Block's efforts so much. What to do then?

Well, you lobby Washington to regulate your lower-cost competitors out of business.

UBS, a major investment banker, issued an analysis this week describing how good the rules would be for H&R Block:

"The new regulations should help Block by: 1) reducing fraudulent preparers (that generate oversize refunds dishonestly), 2) add barriers to entry (or continuation) for small preparers, 3) provide revenue as Block may sell their continuing education and competency tests to others, and 4) perhaps boost paid prepared share."

This is yet another example to dispel the media myth -- endorsed by politicians -- that regulation is about curbing the excess of big business. As with Obama's tobacco regulations, Teddy Roosevelt's meat inspections, and George W. Bush's toy-safety laws, big business is the supporter and the beneficiary of big-government regulation.

In such cases, regulation supporters typically respond by either denigrating the small businesses who would suffer, or by counting their loss as a necessary evil of protecting the consumer. And there are unscrupulous, fly-by-night tax preparers out there. But taxpayers have plenty of access to trained, tested, registered, and regulated tax preparers.

All that accreditation brings with it is some confidence, and a price. Is the confidence worth the price? While the market could answer that question, it's just easier if you let the government settle the matter.

Of course, however accredited or unaccredited a tax preparer is, he could still be sued or prosecuted for incompetence and fraud. So this regulation isn't primarily about rooting out bogus claims, it's about shutting down smaller operations.

IRS regulation would add a government stamp of approval to these shops, helping them bring in new clients. UBS posits, "it is possible that regulation may boost public's perception of the value provided by paid preparers."

It's not hard to see the big tax preparers' fingerprints on these rules.

In June, the IRS commissioner called for a full review of the paid tax-preparer industry. On July 1, H&R Block hired the Podesta Group, a lobbying firm co-founded by John Podesta who was Barack Obama's presidential transition director.

It's also noteworthy that a former H&R Block executive is currently a top Obama appointee at the IRS. Mark Ernst was H&R Block's CEO until 2007, when he resigned amid investor uproar over the company's losses in the subprime mortgage business. In early 2009, Obama tapped him as deputy commissioner of the IRS.

This is how Washington regulation works. Government imposes costs on businesses, big businesses welcome the costs, and small businesses crumble. This drives up costs for consumers and profits for the well-connected.

Timothy P. Carney is The Washington Examiner's lobbying editor. His K Street column appears on Wednesdays.

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