Improving The Quality Of Services Offered By Tax Agents : Can Regulation Assist?

The practice of taxpayers using tax agents, or paid preparers, to lodge their tax returns is long standing and relatively common in many jurisdictions that rely on self assessment, including Australia and the United States (US). However, across these jurisdictions the relevant regulatory requirements vary markedly. Tax agents in Australia are currently subject to quite rigorous regulation regarding their level of education, experience and professional conduct. Further, it appears that these requirements are soon to be made even more rigorous to improve the quality of services provided by tax agents to taxpayers. In contrast, in the US in all states and territories other than California and Oregon, no educational or regulatory standards are imposed on the majority of individuals who prepare federal and state income tax returns for a fee. The performance of tax agents in Oregon, with its relatively rigorous program of paid preparer regulation, was compared to tax agents in the rest of the US (except California). Paid preparer tax returns in Oregon were found to be both more accurate and more compliant on three measures of performance: (1) math errors, (2) potential reporting discrepancies of $10 or more for interest income, and (3) audit outcomes. This finding may have important implications for Australia as it seeks to introduce further regulatory reform in this area, and for other self-assessment jurisdictions, including the United Kingdom and US, where paid preparers play a vital role in tax administration and taxpayer compliance