January 06, 2010
Wednesday

Internal Revenue Service Commissioner Doug Shulman has announced plans to increase the agency's oversight of paid tax preparers.

For the tax-filing season that's just beginning, the IRS will send letters to about 10,000 preparers whose returns include large volumes of certain types of errors and remind them to be vigilant about areas where mistakes frequently occur. These include the earned income tax credit and the first-time homebuyer credit, both of which involve "quite a bit of fraud," Shulman said. Others include Schedule C business income and expenses and itemized deductions.

In the coming weeks, the IRS also will send agents to thousands of preparers on surprise and announced visits. In some cases, agents will identify themselves as IRS employees. In others, they will pose as taxpayers to see what kind of advice they get.

Longer term, the IRS will begin new registration, testing and continuing education requirements for paid preparers.

Today, anyone may prepare a federal tax return for anyone else. The IRS has no testing, licensing or educational requirements. Only a few states -- including California, Oregon and New York -- license or regulate tax preparers. (In California, anyone who prepares income tax returns for a fee and is not a licensed attorney, certified public accountant or IRS enrolled agent must register with the California Tax Education Council, complete an educational requirement on tax laws and obtain a surety bond to protect clients against fraud.)

Many tax preparers are CPAs, enrolled agents or attorneys who must meet educational, ethical and other requirements imposed by their professional or licensing organizations. But many preparers do not have to meet any specific standard when they fill out a tax return for an American taxpayer, Shulman said.

The new IRS initiatives will take several years to fully implement and will not be in effect for the current tax-filing season. They will:

--Require preparers who must sign a federal tax return to register with the IRS and obtain a preparer tax identification number.

--Require competency tests for all paid tax return preparers except attorneys, CPAs and enrolled agents who are active and in good standing with their respective licensing agencies.

--Require continuing professional education for all paid tax return preparers except attorneys, CPAs, enrolled agents and others who are already subject to continuing education requirements.

--Extend ethical rules to all paid preparers that currently apply to attorneys, CPAs and enrolled agents who practice before the IRS. This will let the IRS discipline or suspend tax preparers who engage in unethical or disreputable conduct.

The IRS will pay for these new initiatives by imposing a user fee on people who are registered and tested.

Shulman reminded taxpayers that they are legally responsible for what goes on their return, even if they hire someone to prepare it. He said most preparers provide honest, excellent service to their clients.

Consumers should be wary of preparers who claim they can get bigger refunds than others or whose fees are based on a percentage of the refund. They should make sure the preparer signs the return and gives a copy to the client. Also make sure the preparer's firm will be around after the return is filed to answer questions.

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Ketchikan, Alaska

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