Tax Preparers: Oregon's Regulatory Regime May Lead to Improved Federal Tax Return Accuracy and Provides a Possible Model for National Regulation Page: 2 of 41
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Accountability. Integrity. Reliability
Highlights of GAO-08-781, a report to the
Committee on Finance, U.S. Senate
Why GAO Did This Study
Millions of taxpayers use paid tax
return preparers and many of these
paid preparers are not subject to
any qualification requirements.
Paid preparers in California and
Oregon are exceptions in that these
states have set paid preparer
Additionally, two bills before
Congress would require national
paid preparer regulations.
To help Congress better
understand the potential costs and
revenue effects of regulating paid
preparers, GAO was asked to study
(1) how IRS, California, Oregon,
and other states regulate paid
preparers, (2) how the accuracy of
federal tax returns from California
and Oregon compare to other
returns, and (3) state-level costs
and benefits of the California and
Oregon programs and insights they
provide for a possible national
program. GAO analyzed IRS
research data on tax return
accuracy; interviewed IRS officials,
state administrators, and preparer
community representatives; and
reviewed relevant documents.
If Congress judges that the Oregon
paid preparer regulations account
for even a modest portion of the
higher accuracy of Oregon federal
tax returns at a reasonable cost, it
should consider adopting a similar
regime nationwide. If Congress
enacts paid preparer legislation, it
should also require IRS to evaluate
its effectiveness. IRS provided
technical comments on a draft of
this report which were
To view the full product, including the scope
and methodology, click on GAO-08-781.
For more information, contact Michael
Brostek at (202) 512-9110 or
brostekm @ gao.gov.
Oregon's Regulatory Regime May Lead to Improved
Federal Tax Return Accuracy and Provides a Possible
Model for National Regulation
What GAO Found
No federal registration, education, or testing requirements apply to all paid
preparers before they can prepare tax returns. California and Oregon have
requirements that preparers must meet before preparing returns in those
states. California paid preparers who are not attorneys, certified public
accountants, enrolled agents (or employed by one of these types of tax
practitioners) must complete an education requirement, obtain a bond, pay a
fee, and register. In following years, they must complete continuing education
requirements, and renew their registration. Oregon has similar, but more
stringent requirements. Oregon has a two-tiered licensing system, with an
education requirement and examination for Licensed Tax Preparers and work
experience and a second examination for Licensed Tax Consultants. Oregon
exempts certified public accountants and their employees, as well as
attorneys, from these requirements. Oregon requires enrolled agents to take a
shorter version of the consultant examination. Fifty-four percent of Oregon
applicants passed the state's basic examination. Recently, Maryland enacted
legislation to regulate paid preparers and at least three other states have
similar pending legislation.
According to GAO's analysis of the Internal Revenue Service's (IRS) tax year
2001 National Research Program data, Oregon returns were more likely to be
accurate while California returns were less likely to be accurate compared to
the rest of the country after controlling for other factors likely to affect
accuracy. In dollar terms, the average Oregon return required approximately
$250 less of a change in tax liability than the average return in the rest of the
country. For Oregon's 1.56 million individual tax filers, this equates to over
$390 million more in federal income taxes paid in Oregon than would have
been paid if the returns were as accurate as similar returns in the rest of the
country. These results are consistent with, but do not prove, that Oregon's
regulations lead to some increased tax return accuracy. GAO's analysis could
not account for all factors that might affect the accuracy of these tax returns.
Because some states without preparer regulation also had tax returns that, on
average, were more accurate than the national average, some portion of the
increased accuracy of Oregon returns likely is due to other factors.
The California and Oregon programs' costs varied with differences in the
programs' scope. Both programs' administrative costs are funded primarily
from program fees. California's costs were about $29 per preparer and
Oregon's about $123. GAO estimates that the total annual cost of the ongoing
Oregon program, including state costs and the cost to preparers for their time
and expense in acquiring required education, likely is about $6 million.
Officials in both states believe program benefits like reducing the number of
incompetent preparers outweigh costs, although neither state had data on
benefits. IRS officials said that a national program's costs likely would depend
on the program's objectives and features.
United States Government Accountability Office
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United States. Government Accountability Office. Tax Preparers: Oregon's Regulatory Regime May Lead to Improved Federal Tax Return Accuracy and Provides a Possible Model for National Regulation, report, August 15, 2008; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc296149/m1/2/: accessed April 20, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.