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Will You Need a License to File Your Taxes?


Big tax preparers may benefit from new regulations.


It may be time to think about going long in tax preparation software and companies that prepare individual returns.

The Internal Revenue Service is considering new rules that could require tax preparers to be licensed. If adopted, the rules would likely benefit large companies.

The goal: higher tax compliance and less fraud.

The tax code has become so bloated and the instructions so opaque that about 80% of taxpayers seek help preparing their returns. Many rely on software such as Intuit's (INTU) TurboTax.

The proposed regulations would be good news for H&R Block (HRB), the largest US tax-preparation firm, Jackson Hewitt (JTX), the second largest, and also smaller private firms such as JTH Tax, doing business as Liberty Tax Service.

Sole practitioners, on the other hand, might be hurt by the licensing requirement. Self-employed preparers, who often set up shop in store fronts during tax season or work out of their homes, would be required to meet the same licensing requirements, and pay the same fees, as their institutional counterparts.

The new rules are likely to be pushed as a consumer protection measure because preparers hold the taxpayer responsible for any errors on the return. A preparer's mistake can cost the filer penalties and interest, in addition to any tax due.

"Tax return preparers help Americans with one of their biggest financial transactions each year," says IRS Commissioner Doug Shulman. "We must ensure that all preparers are ethical, provide good service and are qualified. At the end of the day, tax preparers and the associated industry must be part of our overall game plan to strengthen the integrity of the system."

Maybe, but that could easily be a polite way of stating the obvious: Washington needs more revenue in view of its massive spending.

At the very least, someone has to pay to run the printing presses spitting out all that new money.

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