However, the IRS very recently passed new regulations. Starting
in 2011, all tax preparers must provide a PTIN, or preparer tax
identification number, with every return. Preparers must submit an
online or paper application and pay a fee to acquire a PTIN, and
they must take one of two competency exams offered by the IRS,
either in person or online, and pass it, before the end of 2013;
the tests are just coming available now. They must also keep up
with continuing education classes. In addition, those wishing to
electronically file must also apply for an EFIN, or an electronic filing
identification number. Preparers who reasonably expect to file 100
or more returns are required to e-file and thus apply for an EFIN.
The new regulations were put into place to prevent both fraud and
preparers who simply make errors too frequently, particularly in
regard to smaller firms and individuals. Between 2006 and 2008,
the IRS began 600 investigations into the fraudulent actions of tax
preparers, which led to 356 convictions, many of these resulting in
prison sentences. In 2006, the Government Accountability Office
investigated tax preparers by posing as taxpayers needing returns
filed, and out of nineteen cases, found that five made significant
errors. These new procedures have the potential danger to lead to
higher costs, as it could be more difficult and costly to pay licensed
preparers.
The Future of the Tax Preparation Industry
The main competitor for tax preparation industry is personal finance
software, such as Quicken and Turbo Tax, which allows people to file
tax returns by themselves from their homes. Fifty million people
used these products in 2010—Intuit, the company which makes
these leading software programs, made over $3 billion last year
and remains poised as a serious competitor to professional tax
preparers for years. It is also now possible to file taxes through
the websites for Turbo Tax and other programs. In order to counter
that, tax preparers have begun to operate their own websites.
These generally contain web forms which consumers fill out and
the preparer files electronically, and they offer a middle ground
between paying a tax preparer to file by hand, and computing their
own taxes at home. Liberty Tax Service® provides computerized
income tax preparation, electronic filing, and online filing through
eSmart Tax.
Tax preparation is unusual in that
more so than any other industry,
it provides a service which assists with a
process that legally every adult American
is required to do—submit an income tax
return. Because of that, tax preparation is
big business…and tends to be recession
resistant.
In order to accommodate this growing online practice, tax preparers
must focus on data security, which is extremely important, by
making sure their computer and network security is appropriately
beefed up. In addition, because of constant changes to the tax code
and regulations, tax preparers must make sure their software is up
to date. Also, many taxpapers have complex returns which often
lead to their being more likely to go to professionals. The other
