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Proposed regulations for paid tax preparers

Posted by Andrew Chan  February 5, 2010 02:00 PM

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Last year the IRS conducted a study of the tax preparation industry to see if there needs to be greater oversight and regulation of the industry. The study revealed that "more than 80 percent of American households use a tax preparer or tax software to help them prepare and file their taxes" and that there needs to be higher standards for tax preparers. Based on the results of their study, the IRS has proposed several measures aimed at providing taxpayers with a higher level of protection and service.

Although the proposed regulations are not expected to be fully implemented for several years the IRS has started to roll out some changes for this year's tax filing season. The efforts currently being implemented include:
  • Sending letters to approximately 10,000 tax preparers across the country highlighting areas where errors are often found including business income and expenses (Schedule C), itemized deductions (Schedule A), the Earned Income Tax Credit and the First Time Homebuyer Credit;
  • Having IRS Agents visit preparers to ensure that the preparers are assisting their clients appropriately and to address compliance and education issues; and
  • Implementing additional tools to investigate and detect non-compliance such as having IRS agents pose as clients.
Additional proposed regulations which are expected go into effect in future tax years include:
  • Requiring paid tax return preparers to register with the IRS,
  • Requiring competency tests for all paid tax preparers (except attorneys, Certified Public Accountants, and enrolled agents),
  • Requiring ongoing continuing professional education for all paid tax preparers,
  • Extending the IRS' ethics rules that currently apply to attorneys, Certified Public Accountants, and enrolled agents to all paid preparers.
While these proposed rules should provide more protection for taxpayers, you should still be careful when having some else prepare your return. The IRS offers the following tips on what to look for when choosing a tax preparer:
  • 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 you with 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.
This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of CardHub.com, a credit card and gift card marketplace, and WalletHub.com, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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