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How to select your Tax Preparer
Taxpayers are legally responsible for what is on their tax returns -- even if those returns are prepared by someone else.
* 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.
What are the IRS regulatory requirements for a Tax Preparer?
Competency Testing: Tax return preparers who are not attorneys,
certified public accountants or Enrolled Agents will have to take a
competency test. The IRS plans to require that paid tax return preparers who
are not attorneys, certified public accountants, or Enrolled Agents
pass an IRS competency test. It should be noted that certified public
accountants, attorneys and Enrolled Agents already take competency
tests. However, in the future the IRS will study tax return accuracy of
attorneys and certified public accountants to ensure that this
exemption to testing requirements is warranted. Previously any person could prepare a federal tax return
for any other person for a fee. There were no minimum competency
standards.
There would be two levels of competency examinations for: (1) Wage
and non-business Form 1040 series and (2) Wage and Small Business Form
1040 series. The IRS plans to monitor the testing process during the
implementation period to study whether additional tests are necessary. The IRS plans to add a third test on business tax
preparation after the initial implementation phase is completed.
The IRS does not intend to “grandfather” any tax return preparer from
the testing requirement based on return preparation experience. The IRS
plans to require unregistered individuals who want to become preparers
to pass the competency test prior to registration and issuance of a
PTIN.
Registration: Paid tax
return preparers currently have no registration requirement with the
IRS, but they are required to sign the returns they prepare and provide
either their Social Security Number or a Preparer Tax Identification
Number (PTIN). The PTIN had been an optional number. The IRS plans to
make the use of PTINs mandatory.
The IRS intends to require
individuals who are required to sign a federal tax return as paid
return preparer to register with the IRS and pay a user fee.
Continuing Education:
Paid preparers who are not attorneys, certified public accountants,
Enrolled Agents would be required to complete 15 hours of continuing
education annually. The 15 hours must include three hours of federal
tax law updates, two hours of tax ethics, and 10 hours of other federal
tax law topics.
While attorneys, certified public accountants, Enrolled Agents
are not subject to IRS continuing education requirements or
self-certification during the registration renewal process, they
generally must complete continuing education to retain their
professional credentials. If data is collected in the future that
identifies a need for educational requirements for these individuals,
the IRS will consider expanding the continuing education requirements
to them.
Public Database: The IRS will develop a
searchable database of tax return preparers that have registered and
passed the competency examination. This will allow the public to see
whether a preparer has taken appropriate tests and has registered with
the IRS.
Compliance Checks: The IRS plans to require all
signing paid tax return preparers be subject to verification of
personal and business tax compliance every three years.
Ethical Standards:
The IRS recommends making all signing and non-signing tax return
preparers subject to the provisions of Treasury Department Circular
230, which will make them subject to discipline for unethical and
unprofessional conduct. The authority granted to those individuals who
either do not have professional licenses or and who are not enrolled
agents, enrolled actuaries or enrolled retirement plan agents will be
limited to preparing tax returns and representing their clients as
currently permitted during the examination of any return prepared by
that tax return preparer.
How will the IRS monitor and regulate preparers in the near future stemming from new regulatory requirements being phased in?
Enforcement:
The IRS will implement a comprehensive enforcement strategy that
includes applying significant examination and collection resources to
tax return preparer compliance. The IRS will also take steps during the 2010 filing season to increase education and enforcement of return preparers.
Evaluation:
The IRS will study how to enhance the effectiveness of traditional
enforcement tools and incorporate new non-traditional enforcement
tools, such as directed notices and targeted site visits, into the
enforcement activities directed at tax return preparers. The IRS will
study the impact an enhanced return preparer enforcement strategy has
on taxpayer compliance and consider further changes to the IRS
enforcement strategy dependent on the outcomes realized. The IRS will
increase the coordination among its operating divisions and increase
the staffing of the Office of Professional Responsibility to allow for
increased investigations of practitioners, including tax return
preparer misconduct.
Why is the Return Preparer Review and resulting new
regulatory requirements important? Use of paid preparers has grown
steadily in recent decades. Today, a majority of U.S.taxpayers rely on
a paid preparer to assist them in meeting their federal tax filing
obligation. A federal tax return is one of the most important financial
documents that many individuals or families deal with in a given year.
It is unclear exactly how many paid return preparers there are in the
U.S. The IRS estimates the number to be between 900,000 and 1.2 million.
All
preparers are subject to some oversight but it varies greatly depending
on their professional affiliations and in which state they practice.
Many preparers do not have to pass any government or professionally
mandated competency requirement before charging to prepare tax returns.
Taxpayers need and deserve return preparers who are ethical, fully
qualified and able to provide the best possible service. In addition,
unethical or incompetent preparers are the most likely to make mistakes
or file incorrect returns, adding to non-compliance. Public comments
received by the Return Preparer Review overwhelmingly expressed support
for increased oversight of paid preparers, particularly those who are
not attorneys, certified public accountants or others authorized to
practice before the IRS.
The IRS will immediately increase its education and enforcement presence in the return preparer community this filing season.
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