The Internal Revenue Service unveiled Monday new proposals to bring tax return preparers under greater scrutiny.
They would need to register with the IRS, take competency tests and continue to educate themselves as part of the requirements, which will go into effect gradually over next few years. Tax preparers also will be subject to discipline for unprofessional and unethical conduct as part of the proposed changes.
The requirements are a result of a six-month IRS study of the paid tax return preparer industry to improve compliance with tax laws and to provide better service to taxpayers.
It represent a monumental shift in the way the IRS will oversee tax preparers, said IRS Commissioner Doug Shulman during a teleconference Monday.
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More than 80 percent of American households rely on a tax preparer to file their taxes, one of their biggest financial transactions of the year, he said. But there's no national oversight standards for an estimated million or so tax preparers in the U.S., he said. Currently, anyone may prepare a federal tax return for anyone else and charge a fee.
Shulman said the IRS will develop a searchable database of registered tax preparers who have passed the competency exam.
"Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation's tax system." The IRS gets about $2.5 trillion in tax revenues annually.
Attorneys, certified public accountants and enrolled agents, tax professionals who have demonstrated special competence in tax matters, are exempt from competency testing, continuing education and self-certification during the registration renewal process. Also, trained community volunteers with Volunteer Income Tax Assistance Program for those on low to moderate incomes won't be subject to new requirements, Shulman said.
The proposals will not be implemented this tax season, but the IRS will step up oversight of tax preparers. Beginning this week, letters will be sent out nationwide to about 10,000 paid tax preparers, particularly those known to commit frequent errors on tax returns.
The IRS sees a lot of mistakes and fraud in tax returns that claim the earned income tax credit and the first-time home buyer credit, Shulman said, adding IRS agents also will make surprise visits to check on tax preparers this season.
"There are some unscrupulous tax preparers," he said.
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