IRS wants to regulate return preparers

[Quixote]

IRS Proposes New Registration, Testing and Continuing Education Requirements for Tax Return Preparers Not Already Subject to Oversight

Higher Standards to Boost Protections and Service for Taxpayers,
Increase Confidence in System, Yield Greater Compliance with Tax Laws

IR-2010-1, Jan. 4, 2010

WASHINGTON –– The Internal Revenue Service kicked off the 2010 tax filing season today by issuing the results of a landmark six-month study that proposes new registration, testing and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.

To bring immediate help to taxpayers this filing season, the IRS also announced a sweeping new effort to reach tax return preparers with enforcement and education. As part of the outreach effort, the IRS is providing tips to taxpayers to ensure they are working with a reputable tax return preparer.

"As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year. The decisions announced today represent a monumental shift in the way the IRS will oversee tax preparers," said IRS Commissioner Doug Shulman. "Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation's tax system. In addition, we are taking immediate action to step up oversight of tax preparers this filing season.”

Based on the results of the Return Preparer Review released today, the IRS recommends a number of steps that it plans to implement for future filing seasons, including:

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 (PTIN). 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, certified public accountants (CPAs) and enrolled agents who are active and in good standing with their respective licensing agencies.
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.
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.
Other measures the IRS anticipates taking are highlighted in the 55-page report released today.

Currently, anyone may prepare a federal tax return for anyone else and charge a fee. While some preparers are currently licensed by their states or are enrolled to practice before the IRS, many do not have to meet any government or professionally mandated competency requirements before preparing a federal tax return for a fee.

First Step: Letters to 10,000 Preparers
The initiatives announced today 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 immediate 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 the 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 a taxpayer.

During this effort, the IRS will continue to work closely with the Department of Justice to pursue civil or criminal action as appropriate.

Steps Taxpayers Can Take Now to Find a Preparer
In addition to the stepped-up oversight of preparers, Shulman also announced a new outreach effort to help make sure taxpayers choose a reputable preparer this filing season. That’s particularly important because taxpayers are legally responsible for what is on their tax returns -- even if those returns are prepared by someone else.

“Taxpayers should protect themselves from unscrupulous preparers,” Shulman said. “There are some simple steps people can take to choose a reputable tax preparer.”

Most tax return preparers are professional, honest and provide excellent service to their clients. Shulman offered the following points for taxpayers to keep in mind when selecting a tax return preparer:

Be wary of tax preparers who claim they can obtain larger refunds than others.
Avoid tax preparers who base their fees on a percentage of the refund.
Use a reputable tax professional who signs the tax return and provides a copy.
Consider whether the individual or firm will be around months or years after the return has been filed to answer questions about the preparation of the tax return.
Check the person’s credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in all matters, including audits, collection and appeals. Other return preparers may only represent taxpayers for audits of returns they actually prepared.
Find out if the return preparer is affiliated with a professional organization that provides its members with continuing education and other resources and holds them to a code of ethics.


More information about choosing a tax return preparer and avoiding fraud can be found in IRS Fact Sheet 2010-03, How to Choose a Tax Preparer and Avoid Tax Fraud.

Resources for Taxpayers this Filing Season
This filing season, the IRS has many free resources to help taxpayers prepare and file their returns.

IRS.gov has a variety of features to help taxpayers. There’s a special section to help taxpayers get information on a variety of Recovery tax benefits. The web site also has information for people who lost a job or experienced financial problems in 2009.

IRS.gov also has information to help people track their refund.

IRS.gov will once again host the IRS Free File program, which allows virtually everyone to file their taxes for free through the web site. Free File and the rest of the IRS e-file program will open later this month.

More filing season resources are available on IRS.gov:

1040 Central: Help for Individual Filers

Tax Breaks in the American Recovery and Reinvestment Act

Lost your job or the victim of foreclosure? The IRS can help in difficult situations

E-file and Free File

Taxpayer assistance centers

[Randall]

Where (statute) does the IRS get this authority from?

[bmielke]

Thousands of the 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.

This is what I find most interesting... Will they be bringing a rubber hose or is that for the second visit?

[fortinbras]

Contrary to the thread title, the IRS already regulates tax preparers, and, on many occasions, gone to court to enjoin someone from continuing to work up other peope's tax returns.

Tax preparers who promote dishonest tax dodges and the like are not beaten with rubber hoses or anything like that, but the tax preparer must sign as such the tax returns he worked on, and the name of a disqualified preparer will probably trigger an inquiry, maybe an audit, that will tell the client not to go back to him.

[notorial dissent]

Unless things have changed markedly, paid preparers are NOW required to be registered with the IRS, get a PTIN, and a pretty little card to go with it, to certify that they have read the rules and know that they are not supposed to be filing fraudulent returns, and that they have to sign under penalty of perjury that the return is true and correct and so on, and yet curiously it doesn't seem to stop the fraudsters. Most places I am familiar with require their people to take a "tax college" course before they are hired, and at least the one I am familiar with was pretty extensive, you're not a CPA when you get done, but you know the basics of preparation and what the law is. Not that this will make one whit of difference to the frauds and cheats.

I personally think they are wasting their time, they can't keep up with what they are doing now and they are going to worry about and spend time and money keeping track of the thousands of people who are doing tax returns, mostly on computer software and mainly honestly, when they can't seem to do anything about the real con artists who all but advertise what they are doing. It does sound like the IRS, when you can't actually do anything productive about a problem that has been smacking you in the face for years, make a lot of noise on something else to draw attention that makes you look like you are actually doing something, when you really aren't.

[Number Six]

CSPAN had a segment on this today, at the tail end of the Washington Journal. http://www.c-span.org/Series/Washington-Journal.aspx The calls ranged from CPA's critical of abuses of the earned income tax credit--and how they can't turn anyone away from their services for fear of a lawsuit, to taxpayers critical of their experiences with paying taxes, to people who successfully do their own taxes year after year.

I welcome the initiative. There will apparently be probes and "gotcha" undercover operations going out this year to keep preparers on their toes. Filing taxes dishonestly comes with a huge cost in fear of audits or fear of getting snagged in an investigation. If you go to a CPA or paid preparer, there should be a rigorous step by step analysis of supportable records, deductions, credits and so forth--taxpayers must be able to substantiate their returns by records. Every preparer I have met has been cavalier and dismissive of accuracy in self-employed income and buying and selling.

[Judge Roy Bean]

I really don't think this is all that new.

Many years ago I had the misfortune of using a preparer that had been recommended to me by a family member. I had become self employed with multiple sources of income in that year and I was not completely surprised at the first audit, which he and his staff handled successfully. But the second year did surprise me and there was a small discrepancy which HE paid for. The third year was the last even though there was no additional tax due. The stress and wasted time simply wasn't worth it and I switched to a little firm recommended by the in-house counsel of a company I was a director for. During the first meeting they introduced me to the fact that the guy I had been using was on the IRS's "aggressive preparers" list and that was the reason I had been audited repeatedly. It's been thirty-something years since and I've been audited only once. (Keeping fingers crossed!)

[jg]

This is new.
Up until now, unless one was an attorney, a CPA or an EA there has been no means, other than through the courts, to regulate or to even register those that are federal income tax preparers. So, anyone could hang out a sign and prepare federal income tax returns even though they could not do the same if they wished to cut your hair or trim your nails.

Up until now, there was an environment that allowed untrained and unregistered preparers to operate without any ethical standards of conduct. Now, the IRS will place all signing and non-signing tax return preparers under Treasury Department Circular 230. Previously there was no point in trying to warn of an unethical preparer unless, or until, the behavior was criminal.

It means that the IRS, through the Office of Professional Responsibility, will now have discipline available at an administrative level for misconduct of any preparer rather than only relying on civil injunctions or criminal prosecution. For an example of such penalties see the article at http://www.internationallawoffice.com/n ... 5f58ae7fcb

Of course, any regulation is only as good as the enforcement so we will have to see what is the result. Nonetheless, it is a step toward leveling the field between enrolled and unenrolled preparers and it will allow a mechanism for reporting those unenrolled preparers that might tend to disregard the rules.

This is a change that the professional preparer community has lobbied to get in place for some years.

[Number Six]

Nina Olsen, Tax-Payer Advocate was on CSPAN this morning: http://www.c-span.org/Watch/Media/2010/ ... ocate.aspx

I heard one TP call toward the end of the program citing a 1924 law on why wages should not be taxable. As usual, she did an excellent job.

[Arthur Rubin]

Where (statute) does the IRS get this authority from?

I don't think they can do that, at present. I believe that they are requesting the authority from Congress.

However, they can (probably) consider a non-registered paid preparer an audit flag, if they so choose. There is considerable flexibility in their choice of which returns to audit.

[grammarian44]

Where (statute) does the IRS get this authority from?

31 U.S.C. section 330(a):

Subject to section 500 of title 5 [the APA], the Secretary of the Treasury may:

(1) regulate the practice of representatives of persons before the Department of the Treasury; and
(2) before admitting a representative to practice, require that the representative demonstrate--
(A) Good character;
(B) Good reputation;
(C) necessary qualifications to enable the representative to provide to persons valuable service; and
(D) competency to advise and assist persons in presenting their cases.

Unless I'm sorely mistaken about how government is organized, I believe that representatives of taxpayers before the IRS are representing persons before the Department of the Treasury.

[Arthur Rubin]

Where (statute) does the IRS get this authority from?

31 U.S.C. section 330(a):

Subject to section 500 of title 5 [the APA], the Secretary of the Treasury may:

(1) regulate the practice of representatives of persons before the Department of the Treasury; and
(2) before admitting a representative to practice, require that the representative demonstrate--
(A) Good character;
(B) Good reputation;
(C) necessary qualifications to enable the representative to provide to persons valuable service; and
(D) competency to advise and assist persons in presenting their cases.

Unless I'm sorely mistaken about how government is organized, I believe that representatives of taxpayers before the IRS are representing persons before the Department of the Treasury.

Almost. Presently, only lawyers, CPAs, and EAs may represent taxpayers before the IRS. All other preparers can only testify as to their (the preparer's) reasoning for filing the return, which is not considered representing the taxpayer. If the IRS wants to allow "unenrolled preparers" to represent taxpayers, they can then regulate them.

[grammarian44]

The question was about what statutory authority the IRS has to evaluate this previously-unregulated class of persons--paid preparers. It was not a question about who has the authority to practice "before the IRS." The answer is that the IRS has the authority to regulate paid preparers already in the cited statute, but has not yet exercised it. It was not a question about whether, in fact, the IRS does regulate paid preparers. I know that they don't. That's their choice; the point is that they have the authority, by statute to regulate them.

Because I was curious about this question, yesterday evening I called and asked a professor who teaches tax administration law at Georgetown University Law Center--and who worked in the Office of Professional Responsibility at IRS for many years--whether it was correct that the IRS has the authority to regulate paid preparers under the cited statute. He confirmed that they do; in fact, the IRS has debated whether it should exercise that authority for many years. Only now have they taken the step of actually moving forward with certifying paid preparers.

According to this professor, the IRS and Treasury also consider return preparation of any sort to be "practice before the IRS." The concept of practice before the IRS is not limited to representation in audits or in court.

[Quixote]

According to this professor, the IRS and Treasury also consider return preparation of any sort to be "practice before the IRS." The concept of practice before the IRS is not limited to representation in audits or in court.

According to statements made by the National Taxpayer Advocate, the Commissioner was not certain until recently that the IRS could regulate unenrolled preparers. As late as early 2009 the IRS was still considering asking Congress to explicitly grant such authority.

Iirc, preparation of wills, contracts, etc., is considered the practice of law, so it's reasonable to treat tax return preparation as the practice of tax law, i.e., practice before the IRS. But it should, arguably, also be reasonable to so treat the dissemination of tax advice by the relatively untrained assisters who staff the IRS customer service line.

[Arthur Rubin]

According to this professor, the IRS and Treasury also consider return preparation of any sort to be "practice before the IRS." The concept of practice before the IRS is not limited to representation in audits or in court.

According to statements made by the National Taxpayer Advocate, the Commissioner was not certain until recently that the IRS could regulate unenrolled preparers. As late as early 2009 the IRS was still considering asking Congress to explicitly grant such authority.

Iirc, preparation of wills, contracts, etc., is considered the practice of law, so it's reasonable to treat tax return preparation as the practice of tax law, i.e., practice before the IRS. But it should, arguably, also be reasonable to so treat the dissemination of tax advice by the relatively untrained assisters who staff the IRS customer service line.

Why restrict it to paid preparers, then? (This may be the way they avoid applying the regulations to the IRS customer service staff, for that matter. ) It seems to me that the present VITA volunteers' training wouldn't meet the proposed requirements, and it's unfair to have government-endorsed tax preparation held to a lesser standard than non-government-endorsed.