IRS to start regulating paid tax preparers

WASHINGTON -- The Internal Revenue Service plans to start regulating paid tax preparers, requiring them to register with the government, pass competency tests and adhere to ethical standards.

The new regulations, announced Monday, will not be in effect for the current filing season -- individual tax returns are due April 15. But IRS commissioner Doug Shulman said tax preparers will be held to higher standards in future years as the IRS steps up its oversight to help reduce fraud and errors.

"As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year," Shulman said. The new regulations "will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation's tax system."

Shulman said he hopes to have all paid tax preparers registered by the 2011 filing season. Preparers will be given about three years to meet competency requirements.

More than 80 percent of taxpayers use a paid tax preparer or tax software to complete their yearly returns. However, paid tax preparers are unregulated in many states, unless they are also lawyers, certified public accountants or enrolled agents who represent taxpayers before the IRS.

Lawyers, certified public accountants and enrolled agents will not be affected by the new regulations. Shulman said those preparers already are regulated through their professions.

Shulman estimated there are between 900,000 and 1.4 million people who accept money to prepare tax returns for others. He said the agency will have a better handle on the number once they have to register.

"We think this is incredibly important to the entire tax system that when people pay good money for a tax return preparer, they don't get bad advice," Shulman said.

The IRS announced in June that it wanted to start regulating paid tax preparers. The agency then held a series of public hearings to gather information, leading up to Monday's announcement.

Though the new regulations won't be in place this year, Shulman said the IRS is stepping up enforcement of preparers this tax season. He said the IRS will send notices to 10,000 preparers who have had frequent errors.

He said agents will also visit thousands of tax preparers. Some of the visits will be announced ahead of time; others will not. In some visits, agents will pose as taxpayers to see if they get accurate advice from preparers, Shulman said.

Shulman said taxpayers should avoid preparers who promise larger refunds, or those who charge fees based on the size of the refund.