Regulate Me! Tax-prep edition 

The IRS is rolling out new regulations for tax preparers, which would include heightened fees and new training requirements. Who's rallying in support of these regulations?

The biggest tax-prep companies.

From Bloomberg:

H&R Block and Jackson Hewitt, the largest and second- largest U.S. tax preparers, expressed support for the plan.

“We think if the focus shifts to who has the highest standards, that’s good for us,” said Kathryn Fulton, a lobbyist in Washington for Kansas City-based H&R Block. The company filed 21.1 million tax returns last year, or about 15.8 percent of all returns....

Regulation often helps the biggest players in an industry. Two reasons are what I call "the confidence game" and the "overhead smash." Government regulation grants an air of legitimacy, deserved or not; and regulation, by adding to overhead, crowds out smaller competitors. More from Bloomberg:

UBS AG analysts Andrew Fones and Margaret O’Connor issued a report that said the IRS initiative will help H&R Block by preventing small preparers from entering the market and driving others out of it.

“We think the regulations could be a boost for Block starting” in 2011, the analysts said....

Sheila Cort, vice president of corporate communications for Parsippany, New Jersey-based Jackson Hewitt, said the company already applies its own standards, including testing and continuing education requirements.

“We support this IRS initiative to improve and increase compliance standards, requirements and expectations for the individual income tax return preparer community,” Cort said.

Martha O’Gorman, chief marketing officer for Virginia Beach, Virginia-based Liberty Tax Service, said the privately held firm created testing requirements for its preparers in anticipation of the IRS action. “We believe it is a good thing for the industry in general,” she said.

We've seen this sort of thing in tobacco, toys, food, employer-based health-care, and as Karen DeCoster points out, Sarbanes-Oxley. Yet still, most of the media write and speak as if regulation is about curbing big business.

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Timothy P. Carney

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