IRS registration of tax-return preparers is long overdue

By Michelle Singletary
Thursday, April 8, 2010

The Internal Revenue Service has issued proposed guidelines in an effort to keep track of the estimated 1.2 million paid tax-return preparers.

Given the complexity of the tax code and the many missteps that can be made in filing a return, this is long overdue. Under current law, anyone can prepare a tax return for a fee. Although some tax-return preparers are licensed by their states or enrolled to practice before the IRS, many don't have to pass any government or professionally mandated competency test in order to prepare a federal tax return.

When the IRS issued its 2010 "dirty dozen" scams, tax-return preparation fraud topped the list. The agency has found preparers who skim a portion of their clients' refunds, charge inflated fees for services, and lure clients by promising refunds even before reviewing their tax information.

The IRS plans to launch a new system later this year through which all tax-return preparers will be required to register, including those who already have a preparer tax identification number, or PTIN. Currently, preparers must use either a PTIN or their Social Security number on tax returns or refund claims.

This new registration requirement will make it easier for the agency to hunt down or monitor suspect returns handled by certain preparers. Last year, the IRS initiated a comprehensive review and concluded that it should establish new eligibility standards, including testing and continuing education, in order to prepare tax returns for a fee. Registered preparers would also be subject to tax compliance checks on their own returns.

The latter certainly makes sense. If you're preparing returns, you should certainly be filing your own return on time and paying as required. Recently, a Massachusetts tax lawyer was barred from practicing before the IRS for four years for failing to file his federal tax return and for filing five other returns late.

"Professionals who demonstrate a lack of respect for our tax system by failing to meet their own tax filing obligations should not expect to retain the privilege to practice before the IRS," Karen L. Hawkins, director of the IRS Office of Professional Responsibility, said in a release about the lawyer's suspension.

On the requirement that all preparers must apply for a PTIN, I was concerned that the proposal wouldn't be clear about whether all preparers working for larger tax-preparation firms such as H&R Block or Jackson Hewitt would be covered. At some of the businesses, one person or a small number of people are designated to sign all returns, even though they may not have met, interviewed or collected information from taxpayers. It appears the proposal would put an end to the current industry practice.

Under the new guidelines, the term "tax-return preparer" means anyone who is compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund. This would include tax preparers who rely on tax software to prepare returns.

Tax-return preparers who are required but fail to include their identifying number on a tax return or refund claim, or fail to include the identifying number of any person with whom they have an employment arrangement or association, are subject to a penalty.

Tax professionals and other interested parties have until April 26 to submit comments about the proposed regulations. Send comments about "REG-134235-08" to Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. You can send an electronic comment to the federal government's Internet rulemaking portal at Search proposed rules and put REG-134235-08 in the keyword field. On the site, you can read the proposed rules before sending your comments.

I know you probably have a lot to do but it's worth the time to weigh in on the proposed guidelines. A lot of us -- me included -- hire people to do our taxes. For 2007 and 2008, more than 80 percent of all federal tax returns were filed either using a tax-return preparer or software, according to the IRS.

Don't you want to make sure that the individual preparing your return has some minimal training and a way for the IRS to track him or her down if your return is inaccurate or fraudulent? The ultimate responsibility for any errors or fraud on your return falls to you, but it's only reasonable and right that the IRS has a way to catch the incompetent or scammer who gets you into trouble.

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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