Tax Preparer Regulation

The Internal Revenue has announced that it will investigate a way to regulate tax return preparers currently operating without any government oversight.  Currently public accountants, tax attorneys and enrolled agents have to comply with minimum standards for training and registration but, other preparers simply set up business and work on taxpayer returns with no education requirements and no need to register with the federal government.

The State of California currently “requires” preparers to take minimum education and to enroll in the  CTEC program but, to this point, it has been a joke with preparers able to take online education which doesn’t update their knowledge nor does it require that the preparer is knows  about law changes. Other state regulation of preparers varies widely with only a few states overseeing their operations. The IRS doesn’t know how many tax preparers are in business nationwide, though estimates range from 600,000 to 900,000 and currently there is no national standard regulation of paid tax-return preparers. Virtually anyone can set up a tax-return preparer business. The Internal Revenue Service said Thursday it will investigate ways to regulate the hundreds of thousands of tax-return preparers currently operating without any federal oversight.

While certified public accountants, tax attorneys and enrolled agents must comply with minimum standards for training and registration, many other tax preparers nationwide simply set up business and start working on taxpayers’ returns, with no education requirements and no need to register with federal authorities.

Meanwhile, state regulation of preparers varies widely, with only a few states overseeing their operations, the IRS said. The IRS doesn’t know how many tax preparers are in business nationwide, though estimates range from 600,000 to 900,000. Even tax preparation software developers may find their practices examined in this review process.

The IRS investigation may result in new standards of ethical conduct to training and education requirements to registration and licensing.  The IRS can already go after those preparers who engage in fraud and can impose penalties for other conduct but the tax agency wants to ensure that all preparers are ethical and provide good service to their clients and are qualified.,

In a  study  done last year, returns completed by unlicensed paid preparers, 17 out of 28 — or 61% — were prepared incorrectly. The IRS review process will involve getting input from a diverse group of people, including preparers and taxpayers. Later this year, the agency will hold a series of public meetings nationwide.

While unlicensed preparers may find stricter standards coming their way eventually, plenty of other tax professionals foresee no changes for themselves.  Attorneys, CPAs, enrolled agents and enrolled actuaries are all covered by Circular 230 which as rules and regulations as well as punishments for negligent or unethical practices.  Tax professionals are assigned PTINs  (practitioner taxpayer identification numbers) and the IRS can sort all the returns by the PTIN, to examine for preparer improprieties. The IRS may eventually require similar ID numbers for all tax preparers.

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