The Internal Revenue Service’s efforts to do more oversight of paid tax preparers will not be fully operational until 2014 and needs to happen sooner, according to a new government report.

While the IRS is requiring an estimated 1 million paid tax preparers to register and receive Preparer Tax Identification Numbers, not all preparers will be required to undergo suitability checks (including compliance with federal tax laws) and competency tests until 2014.

The Treasury Inspector General for Tax Administration evaluated the planning, design and initial implementation of the IRS’s return preparer strategy. TIGTA found in its report that the IRS does not currently have the resources, systems or processes in place to appropriately screen applicants and conduct suitability checks on preparers applying for PTINs.

“While it is encouraging that the IRS is implementing TIGTA’s recommendations to require that each preparer have a unique identification number and comply with federal tax laws, our review found that more needs to be done,” said TIGTA Inspector General J. Russell George in a statement. “As a growing number of Americans now use paid preparers to file their returns, the IRS must move forward expeditiously with its preparer oversight program.”

In June 2009, the IRS launched a review of federal oversight of paid tax preparers in response to audits by TIGTA and the Government Accountability Office. The IRS subsequently announced plans to register all paid tax preparers; develop a database of paid preparers to use for program compliance; and establish competency testing and suitability checks for all paid tax preparers who are not attorneys, CPAs, or enrolled agents.

Although the IRS plans to use preparer registration data to identify and take action against preparers who fail to comply with the new regulations, TIGTA found that the IRS’s management information system is not yet fully capable of gathering data on preparers.

TIGTA made several recommendations to improve the IRS’s management of the program. The report said the IRS should complete a study comparing the four preparer programs to gain an understanding of the basis for the requirements and to ensure consistencies in the requirements and suitability testing among the programs.

In response, IRS management said it plans to complete the study and to leverage its existing best practices.

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