Registration, testing and continuing education are at the core of the requirements proposed by the Internal Revenue Service in response to calls for greater oversight of paid tax preparers.
The proposals are the result of a six-month study of the tax preparation industry. The results are detailed in a 55-page report that calls for:
Requiring all paid tax return preparers who must sign a federal tax return to 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.
Requiring 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. The IRS noted that CPAs, attorneys and enrolled agents already take competency tests. However, in the future the IRS said it will study the tax return accuracy of attorneys and CPAs to ensure that this exemption to testing requirements is warranted.
Requiring ongoing continuing professional education for all paid tax return preparers, except attorneys, CPAs, enrolled agents and others who are already subject to continuing education requirements. The IRS will require 15 hours of annual CPE, including three hours of federal tax law updates, two hours of tax preparer ethics and 10 hours of federal tax law topics, for tax return preparers who are required to register. While attorneys, CPAs, enrolled agents, enrolled actuaries, and enrolled retirement plan agents are not subject to IRS continuing education requirements or self-certification during the registration renewal process, they generally must complete continuing education to retain their professional credentials. The IRS said that if data is collected in the future that identifies a need for educational requirements for these individuals, the IRS will consider expanding the continuing education requirements to them.
Extending the ethical rules found in Treasury Department Circular 230 which currently only apply to attorneys, CPAs and enrolled agents who practice before the IRS to all paid preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct.
The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers, said IRS Commissioner Doug Shulman in a statement. Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nations tax system. In addition, we are taking immediate action to step up oversight of tax preparers this filing season.
The IRS made clear that it does not intend to grandfather any taxreturn preparer from the testing requirement based on returnpreparation experience.
Its hard to argue with anything in the report, said Roger Harris, president of Padgett Business Services. Theres no grandfathering, which may upset some people. Only attorneys, CPAs and enrolled agents are excepted.
The IRS announced its intention in June to begin regulating tax preparers and it conducted a series of forums to gain feedback on new rules and regulations.
The initiatives will take several years to fully implement and will not be in effect for the current 2010 tax season. In the meantime, the IRS is taking action to step up oversight of preparers for the 2010 filing season.
Beginning this week, the IRS is sending letters to approximately 10,000 paid tax return preparers nationwide. These preparers are among those with large volumes of specific tax returns where the IRS typically sees frequent errors. The letters are intended to remind preparers to be vigilant in areas where the errors are frequently found, including Schedule C income and expenses, Schedule A deductions, the Earned Income Tax Credit and the First-Time Homebuyer Credit.
Thousands of preparers who receive these letters will also be visited by IRS revenue agents in the coming weeks to discuss their obligations and responsibilities to prepare accurate tax returns. This is part of a broader initiative by the IRS to step up its efforts to ensure paid tax return preparers are assisting clients appropriately. Separately, the IRS will be conducting other compliance and education visits with return preparers on a variety of issues.
In addition, the IRS will more widely use investigative tools during this filing season aimed at determining tax return preparer non-compliance. One of those tools will include visits to return preparers by IRS agents posing as taxpayers. During this effort, the IRS said it would continue to work closely with the Justice Department to pursue civil or criminal action as appropriate.
In the report, the IRS listed several other recommendations it plans to carry out via regulations. The IRS said it would implement a comprehensive enforcement strategy that includes applying "significant examination and collection resources" to tax return preparer compliance. The IRS will also study how to enhance the effectiveness of traditional enforcement tools and incorporate new non-traditional enforcement tools (such as directed notices and preparer visits) into the enforcement activities directed at tax return preparers.
The IRS will study the impact that an enhanced return preparer enforcement strategy has on taxpayer compliance and consider further changes to the IRS enforcement strategy depending on the outcomes realized. The IRS will increase the coordination among its operating divisions and increase the staffing of the Office of Professional Responsibility to allow for increased investigations of practitioner, including tax return preparer misconduct.
The IRS also said it would establish a task force that will seek the input of the tax preparation software industry, state government representatives, and other relevant stakeholders to address the identified risks associated with the dependence of tax administration on consumer and commercial tax preparation software, and discuss the possibility of establishing industry standards.
The IRS will also convene a working group to review the refund settlement product industry. Part of this review will include analyzing opportunities to improve refund delivery options. The IRS will assess the effectiveness of its provision of the debt indicator on reduction of costs and improvements in service to taxpayers.
The IRS is also developing a public awareness campaign to educate taxpayers, paid tax return preparers, and IRS employees about the new standards and requirements for tax return preparers.
The IRS will also develop a searchable database of tax return preparers who have registered and passed the competency examination.
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