IRS may seek licenses for tax preparers

[tacks]

The IRS is working on new rules that could require paid tax preparers to be licensed in hopes of reducing mistakes and combatting fraud, IRS Commissioner Doug Shulman announced Thursday.

Eighty percent of taxpayers get help with their returns, either from paid preparers or computer programs, Shulman told a congressional subcommittee. Tax preparers currently don't have to be licensed, unless they represent clients in proceedings before the Internal Revenue Service.

Shulman said he wants better leverage to make sure tax preparers act ethically, not only to improve enforcement, but to ensure that taxpayers get quality help in preparing their returns.

"Paying taxes is one of the largest financial transactions individual Americans have each year, and we need to make sure that professionals who serve them are ethical and ensure the right amount of tax is paid," Shulman told the House Ways and Means Subcommittee on Oversight.

From 2006 through 2008, the IRS initiated more than 600 investigations of fraud among tax preparers. During that time, 356 tax preparers were convicted, with more than 80 percent of them sentenced to prison, home confinement or electronic monitoring.

But when the IRS detects a fraudulent return, it's the taxpayer _ not the tax preparer _ who must pay the additional taxes, interest and any penalties, according to the IRS.

Shulman said he will seek suggestions from the industry and consumer groups before making his proposals to President Barack Obama by the end of the year. The proposals could include new regulations or laws.

"I want to enter this with an open mind," Shulman said. "For me, everything's on the table."

Rep. Xavier Becerra, D-Calif., welcomed Shulman's announcement, saying professional tax preparers should be required to show competency.

"All sorts of people are being paid" to prepare taxes, Becerra said. "There's no clear standard."

Under questioning from Becerra, Shulman acknowledged the IRS doesn't even know how many individuals or companies prepare returns for taxpayers.

Registering tax preparers and requiring a minimum competency makes sense, said Paul Cinquemani, director of government relations for the National Association of Tax Professionals.

http://wntp.townhall.com/news/politics-elections/2009/06/04/irs_may_seek_licenses_for_tax_preparers

[DaveO]

Does this mean the DIYer has to pass an exam before Turbo Tax will work?

[MLINDER42]

Licenses

No! But but the guy who does 50 on Turbo Tax all as self prepared may be found out.

[JoshinNC]

How???

No! But but the guy who does 50 on Turbo Tax all as self prepared may be found out.

If their marked self prepared all the registration requirements in the world wouldn't stop him, in your example.

I do believe that ALL paid preparers should be required to sit for a competency exam prior to submitting even 1 return. The legal profession figured out decades ago that they could make themselves rich if they could limit the number of individuals involved in the practice of law. We, as tax professionals, need to recognize that our services are just as important and complicated as many legal matters, and work with our legislators to create barriers to entry that will allow us to increase our own incomes through registration requirements.

[Snaggletoof]

Foot in the Door

It sounds good for the government to crack down on shoddy preparers and require some minimum standard of competency. And thus begin a new round of regulatory processes on tax preparers (as if cir 1230 wasn't enough).

Be advised that regulation will not stop there until our lives are made miserable.

We don't have the situation that lawyers have with passing the bar. The subject matter of their practices are State and Federal codes and historically imbedded common law. And guess who makes the laws? Does anyone out there live in a state where the majority of state legislators are not lawyers???

Be slow to accept the hand of an ever-increasingly-avaricious big brother on this one.

[taxxcpa]

Registration

Anyone who has an EFIN is registered. Most people who prepare taxes for others do file electronically, but a few use someone else's EFIN or file as if it were a series of self-prepared returns.

You can't legislate morality or ethics and requiring courses on ethics would not stop Bernie Madoff from passing the course with flying colors.

Even the best of us make mistakes. No form of registration will prevent even the most well-qualified from an occasional slip-up.

About the best they can do is require some sort of test to determine whether you can prepare a simple 1040 with a schedule A, B & C. Either that or limit tax preparation to CPAs and EAs. That would exclude a lot of well-qualified unlicensed tax preparers.

[DonPriebe]

A simple test already exists!

About the best they can do is require some sort of test to determine whether you can prepare a simple 1040 with a schedule A, B & C. Either that or limit tax preparation to CPAs and EAs. That would exclude a lot of well-qualified unlicensed tax preparers.

A simple test already exists. The IRS requires that all volunteers in their VITA and TCE programs be certified annually before preparing any tax returns. The test is published as Form 6744 at http://www.irs.gov/pub/irs-pdf/f6744.pdf. Passing the basic, intermediate and advanced portion of this test allows the volunteers to to prepare 1040s with Schedules A, B, C-EZ and D.

[WhiteOleander]

I think that the errors and fraud from tax preparers pales in comparison to self-prepped returns. The DIY'ers do absolutely anything they want to.

I reviewed a return this week by a self prep. It was so wrong on so many levels.
Just a few examples:
Had a Sch C for taxi driving. But filled out form 4137 for the "tips".
Had a K-1 From a Limited Ptnrsp with passives losses. Took the losses even though
there was no passive income.
Reported this same income on form 6781 for Straddles????? How they even found
that form is beyond me.
Reported insurance proceeds as income. It was not income. It was a substantial amt.

Until the Govt starts cracking down on DIY'ers, I think it is unfair to single out the paid preparers.

[taxmandan]

Waste of time to license preparers unless,

the IRS can hire 10,000 enforcement officers who do nothing but chase down unlicensed preparers. And they still won't get them shut down, the tax season is too short for the bureaucracy to mobilize and make any difference. By April 16th the fly-by-night preparers will be long gone and the IRS will only be on the 2nd warning letter to them to get a license or face penalties. But they have 90 days to appeal.

[erchess]

My Two Cents

The IRS already has mechanisms for finding erroneous returns. It needs to get better at this task. I think it is already pretty good at distinguishing between honest errors and criminal behavior. One thing it does seem to be not good at is tracking the error rates of particular firms. That needs to change.

I cannot see how requiring licensing of tax professionals could hurt the good ones such as the users of this board. There would probably need to be multiple levels of the new program. For those who simply can't function on tests, the ability of anyone who holds a given license to allow a reasonable number of unlicensed individuals to do the same sorts of returns under his or her guidance with him or her being the one subject to any preparer penalties would be important.

[taxxcpa]

Preparers

Here is the ideal solution. Allow no one but IRS agents to prepare tax returns and pay them based on how much additional tax their clients have to pay. Fire them if they ever prepare a return with a refund.

Anyone who prepares his own tax return could be subjected to a substantial fine or a year in prison.

Instead of refund anticipation loans, have a lending program for people to pay their additional tax--with a 150% annual interest rate.

[solomon]

The licensing noise goes on year after year.

[erchess]

Taxcpa

You have a good idea but it isn't politically feasible until the proletariat has overthrown corrupt bourgoise ideas like capitalism and free elections.

[JG EA]

The IRS already has mechanisms for finding erroneous returns. It needs to get better at this task. I think it is already pretty good at distinguishing between honest errors and criminal behavior. One thing it does seem to be not good at is tracking the error rates of particular firms. That needs to change.

I cannot see how requiring licensing of tax professionals could hurt the good ones such as the users of this board. There would probably need to be multiple levels of the new program. For those who simply can't function on tests, the ability of anyone who holds a given license to allow a reasonable number of unlicensed individuals to do the same sorts of returns under his or her guidance with him or her being the one subject to any preparer penalties would be important.

I agree that they have the means to find bad preparers already. They are choosing a different approach. I think this approach must be cheaper for them and pursues some long-term goals. I am not particularly paranoid, but I’ve been wondering about all the trends.

IRS encouraging on-line unassisted tax filing - resulting mistakes but overall the net must be better for the government than if they had received professional help.

IRS “going after” tax professionals and trying to increase their penalties – essentially assuming non compliance and thereby lowering the public image of tax professionals in general.

Increased rhetoric about “bad” tax professional thereby lowering the public image of tax professionals in general.

[taxmom34]

wouldn't the best solution to this whole problem be "to simplify the whole tax filing rules and regulations"
How much money did you earn? send it in. lol