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December 24, 2013

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New York Becomes Fourth State to Regulate Tax Preparers

Earlier this year, the IRS began an effort to regulate unlicensed tax preparers with testing and continuing education requirements. Interest groups opposed to such regulation, however, halted that effort. Since then, groups vying for such regulation have pushed states to take up the mantle and regulate these unlicensed tax preparers themselves. New York has just joined California, Oregon, and Maryland in stricter regulations.

Under the New York rules, preparers cannot charge “unconscionable fees” and will be required to comport to best practices promulgated by the state’s Department of Tax and Finance. Eventually, New York residents will be able to look up preparers on a state website to ensure they are compliant with all the rules and regulations. Those who violate the rules may face criminal penalties.

Tax preparation is a $9.4 billion industry largely dominated by H&R Block and three other major companies. The remaining two-thirds of the industry is split between licensed and unlicensed preparers. Those supporting the regulations argue that states, and the federal government, lose tax revenue due to fraudulent acts committed by unlicensed tax preparers. Those opposed indicate that it simply adds undue burden to individual preparers making it harder for them to compete freely with the large preparation companies.

Legislation