Regulation and Tax Preparer Qualifications

• In Event: Tax

Abstract

The regulation of tax preparers is a hotly contested ongoing debate as policymakers in the U.S. at both the federal and state levels seek to impose mandatory tax preparer registration, occupational licensing, and certification to protect taxpayers from incompetent and unscrupulous preparers. The topic has been the subject of multiple lawsuits as opponents suggest that such regulations actually harm the public by increasing costs and creating market confusion that reduces the supply of highly qualified preparers. We contribute empirical evidence in this important debate by testing the effects of tax preparer regulation on the qualifications of tax preparer populations. We interact a unique and comprehensive data set of substantially all tax preparers in the United States over multiple years within different state regulatory environments against an unexpected exogenous federal regulatory shock. We find consistent and robust evidence that the regulation of tax preparer populations is associated with more highly qualified tax preparers. We also observe that tax preparer populations tend to be smaller on a per-capita basis in regulated jurisdictions and we find some evidence that the fee per tax return tends to be higher, consistent with the economics research for barriers to entry.

Authors

• John S. Treu, West Virginia University

• Trevor Sorensen, West Virginia University

• Matthew Reidenbach, Pace University