IRS Cracks Down on Tax Preparers- Complex Competency Exams Now Required

Breaking IRS News- Responding to long-standing arguments claiming the government doesn't do enough to regulate tax preparers, the IRS has proposed a broad initiative that would require hundreds of thousands of tax preparers to register with the government, pass a competency exam and adhere to ethical standards.

"There's a lot of incompetence in this field — not only incompetence but unethical behavior," says Frank Degen, government relations chairman for the National Association of Enrolled Agents.

The proposed rules, which the IRS says would take several years to implement, include:

- A requirement for Tax preparers who sign a tax return to register with the IRS and obtain a preparer tax identification number. This would make it easier for the IRS to crack down on crooked preparers who fraudulently inflate taxpayers' refunds.

- Tax preparers would be required to pass a competency test and meet continuing education requirements.

- Enrolled agents, certified public accountants and attorneys would be excluded because they're already subject to education and licensing requirements.

- Tax preparers would be subject to the same federal ethics rules that currently apply to attorneys, CPAs and enrolled agents who practice before the IRS. This would allow the IRS to suspend or discipline preparers who fail to meet those requirements.

In the meantime, The IRS plans to step up inspections of tax preparers for the 2010 tax season. The IRS will send letters to about 10,000 preparers who prepare a large volume of returns in which the IRS often sees errors, such as returns mistakenly claiming the earned income tax credit.

Bottom Line: About 80% of taxpayers hire a tax preparer or use tax software to prepare their returns. It's important to work with someone reliable, and the new Tax Preparer Initiatives may ensure you work with someone trustworthy.