All about business

MIAMI — The nation’s roughly 1 million paid tax preparers will soon be regulated by the Internal Revenue Service, which plans to require competency tests and registration with the government.

The new regulations don’t kick in this year, in part because of the size of the undertaking, IRS Commissioner Doug Shulman said Monday. But the agency will soon send letters to 10,000 preparers with a record of errors on returns.

About 80 percent of taxpayers use a tax preparer or tax software to complete their annual returns. Most are unregulated, unless they are attorneys, certified public accountants or agents who represent taxpayers before the IRS.

More people are turning to preparers or software for help with their taxes as the tax code becomes more complex, he said.

"If we can have preparers fill out taxes right, the American people are well-served," Shulman said. "We’re going to get accurate returns and collect the right amount of money."

Concern about unscrupulous and untrained tax preparers has been longstanding, said Karen Reinagel, president of the Florida Society of Enrolled Agents, a group of tax professionals authorized by the federal government to represent taxpayers in dealings with the IRS. "The taxpayer has no idea if they’ve got the proper education, if they’ve kept up with continuing education," Reinagel said.

People expect hair dressers and auto mechanics to have passed certain tests and acquired certain licenses, and they may assume as much about their tax preparers.
"But if they’re not registered or licensed they don’t have to have an education," Reinagel said. "They wouldn’t think they would have to ask."

The system will be paid for through user fees by tax preparers who register with the government and take the IRS competency tests business card templates.

Eventually, the IRS said, it will have a searchable database for taxpayers to consult before working with a preparer.

Shulman said his agency was already studying potential regulations for tax preparers before recent criticism about abuse of large tax credits offered through federal stimulus laws.
In a report last month by the inspector general for tax administration, as of July 25, about 74,000 taxpayers had wrongly claimed $504 million through the first-time home buyers tax credit that was expanded in last year’s federal stimulus law. The credit pays $8,000 to first time buyers and $6,500 to current owners if they buy a new home.

"Any time there’s a large, refundable tax credit, you’re going to see fraud _ people trying to claim the credit where it’s not earned," Shulman said.

The EITC _ Earned Income Tax Credit _ for low-income individuals and families is also a source of fraud. The credit offers up to $5,600 to those who qualify. Shulman praised that program as having lifted more people out of poverty than any program in the country.

In addition to the new regulations for preparers, IRS agents will visit thousands of tax preparers, sometimes without advance notice. Some agents will pose as taxpayers to gauge what kind of advice a preparer offers. These visits will begin this year.

And the IRS has set up a task force to review tax preparation software and review businesses that offer refund advances.

The rules won’t apply to volunteers who help low-income families and individuals prepare their taxes. But those who work at Volunteer Income Tax Assistance Program already must pass a test before working on others’ returns.

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