National Taxpayer Advocate Nina Olson plans to make oversight of tax return preparers one of her office’s main priorities in the coming fiscal year.

Nina Olson

In a report to Congress on her fiscal year 2010 objectives, Olson noted that “shopping visits” conducted by the Government Accountability Office, the Treasury Inspector General for Tax Administration, and others suggest that “a high percentage of preparers prepare inaccurate returns, fail to perform sufficient due diligence, and even take positions that they know are not supportable,” she wrote. “This conduct usually results in understatements of tax (reducing federal tax revenue and potentially subjecting taxpayers to enforcement actions) and sometimes results in overstatements of tax (causing taxpayers to pay more than they owe).”

Her office has been recommending since 2002 that the IRS should work with the Treasury Department on proposing legislation to regulate unenrolled federal tax return preparers. She wants to require initial testing and continuing professional education for preparers who are not regulated as CPAs, enrolled agents and tax attorneys are. Olson recommended that the IRS step up enforcement actions against preparers who fail to perform due diligence or consciously facilitate noncompliance.

Olson also recommended that the IRS require preparers to use a unique Preparer Tax Identification Number on all returns. “The use of PTINs would provide data concerning the number of return preparers, shield the Social Security numbers of return preparers from identity theft, and make it easier for the IRS to identify return preparers who submit unreasonably high numbers of inaccurate return,” she wrote.

IRS Commissioner Douglas Shulman announced an initiative earlier this month to revamp the IRS’s tax return preparer regulatory strategy by the end of the year (see IRS Plans to Step Up Tax Preparer Regulation). However, he needed to apologize a few days later for the IRS’s transmission of a document to several major accounting firms asking for their ideas on how to create a self-regulatory organization for tax preparers, according to Dow Jones Newswires. Shulman emphasized that the IRS isn’t only looking to the self-regulatory organization option for overseeing tax preparers. “My commitment to open dialogue with all interested parties remains firm, and all options remain on the table,” he wrote.

Olson said that the Taxpayer Advocate Service looks forward to working with the IRS on the tax return preparer initiative.

Other priorities for her office in the coming fiscal year include working with the IRS to improve taxpayer services and the accessibility of the offer-in-compromise program, as well as the ability to administer refundable tax credits effectively. She wants the IRS to reverse the recent sharp decline in the quality of telephone service. Olson also noted with approval that the IRS has retained two contractors to take a closer look at the characteristics of applicants who submit acceptable offers in compromise for paying back taxes, and she said she wants to increase the number of qualifying applicants within the existing process.