IRS announces new standards for tax preparers

Starting in 2011, tax professionals will be required to pass a competency test and register with the government to ensure...

By Isaac Bonnell

The Internal Revenue Service (IRS) kicked off the year by announcing that it plans to step up its oversight of tax return preparers.

Starting in 2011, tax professionals will be required to pass a competency test and register with the government to ensure greater accountability in an industry that is largely unregulated.

“Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation’s tax system,” said IRS Commissioner Doug Shulman in a statement. “In addition, we are taking immediate action to step up oversight of tax preparers this filing season.”

The new IRS rules will:

•    Require that all paid tax return preparers register with the IRS and obtain a preparer tax identification number. These preparers will be subject to a limited tax compliance check to ensure they have filed federal personal, employment and business tax returns and that the tax due on those returns has been paid.

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

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

•    Extend the Treasury Department’s ethics rules, which currently apply only to attorneys, CPAs and enrolled agents, to all preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct.

Many in the industry applaud the effort, especially for continuing education and competency tests. Both H&R Block and Jackson Hewitt, the nation’s two largest tax preparation companies, have issued statements in favor of the new regulations.
Currently, anyone may prepare a federal tax return for anyone else and charge a fee, something local CPA Scott Davis said he is excited to see change.

“I’m all in favor of [the new rules], because in my experience there are a lot of people out there holding themselves out as tax preparers who are not competent enough to be tax preparers,” said local CPA Scott Davis.

Tax laws change often and every year there are new deductions to learn about, from the homebuyers tax credit to business exemptions, Davis said. Ensuring that all tax professionals are up to speed on new rules will greatly reduce the number of errors and better serve taxpayers.

“What they (the IRS) really should do is simplify the tax laws so ordinary middle-class Americans don’t need to hire a tax preparer to do their taxes,” Davis said.

As a CPA, Davis is already subject to regular tests and continuing education. Issuing similar requirements for the whole industry would seemingly increase Davis’ competition, but he sees it another way.

“I suspect what will happen is many tax preparers will go away because they won’t be willing or can’t afford to get the additional certifications that will be required,” Davis said. “So the total number of people preparing tax returns will go down, thus making those of us who are still around more valuable than ever.”

Tips for selecting a tax return preparer

The IRS estimates that more than 80 percent of American households use a tax preparer or tax software to help them prepare their taxes. Here are several tips on how to pick a tax professional:

1) Be wary of tax preparers who claim they can obtain larger refunds than others.

2) Avoid tax preparers who base their fees on a percentage of the refund

3) Use a reputable tax professional who signs the tax return and provides a copy.

4) Consider whether the individual or firm will be around months or years after the return has been filed to answer questions about the preparation of the tax return.

5) Check the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of tax returns they actually prepared.

6) Find out if the tax return preparer is affiliated with a professional organization that provides its members with continuing education and other resources and holds them to a code of ethics.

Source: Internal Revenue Service

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