Archive for Thursday, April 8, 2010

New system to tighten tax preparer rules

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, any individual 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.

Top on scam list

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 someone’s 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 a PTIN or their Social Security number on tax returns or refund claims.

This new registration requirement will make it easier to hunt down or monitor suspect returns prepared 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. 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 attorney 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 attorney’s suspension.

Ending current practices

On the requirement that all preparers must apply for a PTIN, I was concerned that the proposal wouldn’t be clear whether all preparers working for larger tax preparation firms such as H&R; Block or Jackson Hewitt Tax Service 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 the taxpayer. It appears the proposal would put an end to the current industry practice.

Under the new guidelines, the term “tax return preparer” means any individual 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 eRulemaking Portal at Select proposed rules and then under key word put in REG-134235-08. On the site, you can read the proposed rules before sending your comments.

This is worth the time to weigh in on the guidelines. A lot of us — myself included — hire people to do our taxes. For 2007 and 2008, more than 80 percent of all federal tax returns were filed 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? It’s reasonable and right that the IRS has a way to catch the incompetent or scammer who gets you into trouble.


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