Fact or wishful thinking?

[Mike Mac]

Excerpt from Story in Bloomberg Business Week
Tax Preparers Brace for a Shakeout
New IRS rules are expected to generate a wave of consolidation in the tax-preparation industry
By Richard Rubin

John Hewitt expects the fragmented tax-preparation industry he's worked in for four decades to undergo a wave of consolidation because of new government regulations. IRS rules that take effect this year require tax-return preparers to register with the government. Eventually the preparers must pass a competency exam and take continuing education courses.

While smaller businesses may have trouble complying, existing corporate training programs at the major chains already comply with the new rules or can be easily adapted. Hewitt estimates that within a decade the big three players will have 50 percent of the paid tax-preparation market, up from about 25 percent today, even as they compete with software programs such as Intuit's (INTU) TurboTax. "It gives us a competitive advantage, and it pushes out the moms and pops," says Hewitt, who started Jackson Hewitt Tax Service (JTX) of Parsippany, N.J., and is now CEO of Liberty Tax Service, a closely held company based in Virginia Beach, Va. H&R Block, based in Kansas City, Mo., dominates the market, with 20.1 million tax returns filed in 2010.

[JoshinNC]

Wishful thinking

It is my belief that fully 1/2 of HRB, JH and Liberty's "preparers" (data entry clerks) will not pass the basic competency exams and they will either have to close branches or hire EA's and other competent professionals at increased rates of pay, significantly crimping their profits.

Hewitt is one of the fools that bastardized the tax preparation profession into a rush to the bottom commodity, and I trust that he will find that regulation is not his friend, in the end.

[Bees Knees]

Maybe a little of both.

It is a fact that big corporations do better than small mom and pops when regulation hits. In the tax prep industry, H&R Block is the leader in training new preparers, so I think they will easily be able to get their people in line with the new regulations.

As far as the small mom and pop businesses, it depends upon whether we are talking about unlicensed individuals, or EAs and CPAs. EAs and CPAs, for example, are already trained and licensed to go under the new regs. It is wishful thinking to think Jackson Hewitt, H&R Block, or Liberty will have any kind of advantage over these folks. EAs, CPAs, etc. are already in compliance with the new regs and generally can expect to be grandfathered in for any future increase in regulations. Thus, we are already in compliance while the big chains have a lot of work to do to get their people in compliance.

I think the point of the article is those mom and pop operations that are not currently run by EAs and CPAs. There are a lot of unlicensed tax preparers out there with no training, and previously had no requirement to get CPE. Those are the people that are at the disadvantage under regulation, and I expect a lot of them will simply drop out of the business.

[rgtaxservice]

"It gives us a competitive advantage, and it pushes out the moms and pops," says Hewitt, who started Jackson Hewitt Tax Service (JTX) of Parsippany, N.J., and is now CEO of Liberty Tax Service.

How does having a workforce comprised mostly of seasonal inexperienced 'tax preparers' give Liberty a competitve advantage? That kind of remark is a slap in the face to the profession. Bottom Feeder.

Several weeks ago I saw this classified employement ad in my local paper:

Wanted
Tax Preparers
No experience neccesary
Call Liberty Tax Service 824-xxxx

[solomon]

It is my belief that fully 1/2 of HRB, JH and Liberty's "preparers" (data entry clerks) will not pass the basic competency exams...

They won't have to take a competency test as long as the franchise owner is a practitioner. The employee will go under his/her flag.

[rgtaxservice]

They won't have to take a competency test as long as the franchise owner is a practitioner. The employee will go under his/her flag.

That only holds true for the employee doing the true data entry. Interviewers and examiners still need the testing. I was unaware that any of these place have strictly data entry employees. I was under the impression that the interviewer was also doing the data entry.

- Rick

[Snaggletooth]

Reality Check

Let's look at the big picture. Most of us who frequent this board are EAs, CPAs, or other very experienced tax practitioners. And we service clients whose situations are, in general, much more complex than (dare I say) "mainstream" taxpayers with only W-2s, interest statements, and kids. Kids might get complicated due to musical chairs played by the public.

Hewitt is not interested in bogging his operation down with those types of clients. He is after the mainstream market which can be serviced more easily and profitably. We often have discussed the paltry experience requirements for "data entry" people working for Block, JH, and Liberty, and speak of them as if we are in an "upper crust" of expertise by comparison.

Whereas we can show evidence of this, understand that these are employees of better-trained preparers who will not be subjected to testing. The operating model of the storefront operations is to have SOME good preparers to handle the occasional client who comes in with complicated returns, and trust me, there will be registered preparers under which will be working those employees who are meeting the public and gathering information. Also remember, that some of these who begin as these employees will become excellent preparers.

These large firms can do many things for customers that WE can't do. Multiple locations. Extended bank products. HRBlock has quality control procedures you wouldn't believe if you haven't worked there. Advertising, whether you believe in it or not. Mr. Hewitt has founded not just one but at least two multi-million $ firms. And he didn't do it targeting a tiny market. I don't think many of us preparers with vast expertise could have done what he's done. Think of success in terms of what his objective is, NOT what our training is.

If his predictions come true because of regulation, I see the following factors bringing it to fruition:

1) Unscrupulous and unlearned preparers get weeded out by regulations and testing (see comments by Bees Knees).
2) Credible preparers grow weary of regulations. Although regulations are very well accepted by most of us, remember my prediction that these regulations will eventually bring more bureaucratic headaches than are useful.
3) The market served by small-volume preparers shrinks. Fewer and fewer restaurants, farms, hardware stores, etc. and more and more McDonalds, HomeDepots, chains, etc.

And for what it's worth, I would like to see more and more warm-body firms reclaim the market taken by "box."

[VT-EA]

Regulatory capture

http://en.wikipedia.org/wiki/Regulatory_capture

[taxmom34]

i retired from HRB 14 years ago, at that time we had no EA's in our office. since then when i checked online for local office , every one of the preparers are EA's. Don't know if it became a requirement or if they were pressured to take the test, but it looks to me like like the continuing education is working here.

[FEDUKE404]

One word of note

They won't have to take a competency test as long as the franchise owner is a practitioner. The employee will go under his/her flag.

PTIN

(To get one, now required for any paid tax return preparer, does/will require certain stated levels of training and competency.)

FE