IRS Plans Licensing

Recommendations For Tax Preparers

By Nancy K. Crevier

IRS Commissioner Douglas Shulman announced the beginning of June that comprehensive rules requiring tax preparers to be licensed in every state would be presented to US Treasury Secretary Timothy Geithner and President Barack Obama by the end of 2009. Currently, only California and Oregon require any certification of tax preparers.

The new legislation would improve tax compliance and reduce fraud, said Commissioner Shulman, as well as provide uniform standards of ethics for those people who provide tax preparation assistance to more than 80 percent of Americans. The recommendations could include outreach for tax preparers; education and training of tax return preparers; and enforcement of tax return misconduct, according to the IRS.

Requiring certification or licensing of anyone who prepared tax returns would be beneficial to many, said local Certified Public Accountant (CPA) Jack Huray. Mr Huray has been a licensed CPA for more than 30 years, and spent ten years working for the IRS.

“Anybody can hang out a shingle right now and call him or herself a tax preparer,” he said. “Tax preparers should be held accountable for some form of regulation. Some of them are doing some very poor work,” said Mr Huray.

He believes that no matter how intelligent a person is or how long they have been doing their own taxes that a person is not qualified to prepare others’ returns without some kind of certification and ongoing education. As a CPA, Mr Huray takes part in at least 40 hours of professional education every year. “Taxpayers rely on the preparer to know the tax laws. You can’t do that without continuing education of some kind,” Mr Huray said. Through seminars and other courses he is able to keep up with changes in the tax laws. “Each year you build on the changes,” he pointed out.

Uncertified tax preparers are more apt to set up shop in poor areas of cities where taxpayers are anxious to get as much back from the government as possible, and may be less educated as to the legal ways to do so. Unscrupulous and unqualified tax preparers can make costly errors, miss legitimate deductions, or file for illegal deductions that may get the taxpayer thousands of extra dollars up front, but cost them in the long run. “It is pretty serious if you get audited by the IRS,” said Mr Huray. Only a licensed CPA, attorney, or enrolled agent can represent a taxpayer in front of the IRS, and ultimately, the taxpayer is responsible for any errors on a tax return.

Don’t Assume Anything

“Ask a tax preparer for his or her qualifications. Don’t assume anything,” recommended Mr Huray. “Even with big companies, some of the preparers may have undergone only three to six months of training before they are assigned your tax return. Look for someone who is established and has credentials. It’s not all about fees,” he said.

Tax preparers who are around only during the tax season are a poor choice, said Mr Huray. If the taxpayer does not know how to contact the person year around when questions arise, it could be a problem.

“I definitely think that some kind of regulation will be beneficial,” Mr Huray said.

Alan Clavette, a CPA with Clavette, Josselyn & Co. in Newtown has been following the subject of licensing tax return preparers closely, he said. “I do think there is a lot of misunderstanding by the public on who is qualified to prepare tax returns,” said Mr Clavette. “The public thinks that people who are preparers are educated in the tax laws, but general tax preparers do not need a license. Anyone can be a tax preparer,” he said, and that leads to problems for the IRS, which has trouble when unlicensed tax preparers do not understand or follow the laws.

Employees who have taken training at large tax return preparation centers such as H&R Block or Jackson Hewitt are probably quite able to prepare a very basic tax return, said Mr Clavette, but taxpayers with complicated returns need someone educated in tax laws. “You should be very well versed in the area of taxes that you are preparing for someone, or you should not prepare them,” he said.

Certified Public Accountants are required to take many tests to prepare them to represent taxpayers before the IRS and to understand the complicated tax laws. Enrolled agents, explained Mr Clavette, are tax professionals who have taken tests on the tax laws and are also qualified to represent the public before the IRS.

“The IRS can prohibit CPAs and enrolled agents from preparing tax returns if we don’t follow the rules,” said Mr Clavette, “but they have no weapons for dealing with bad or unlicensed tax preparers. They don’t have a license that can be taken away.”

What concerns Mr Clavette and other members of the American Institute of CPAs he said, is that the recommendation could simply be that a tax preparer must apply for and pay for a license. “That is really just a registration, with no testing, and no certification. In this respect, CPAs are not happy with the proposal,” said Mr Clavette.

All tax return preparers should at least have to pass a basic test of tax preparation, he said, or it could become very confusing to taxpayers who hire a preparer believing that because that person holds a license that they are qualified.

“We clearly support the stated goals of the IRS,” said Edward Karl, director of the tax division for the American Institute of CPAs, “but we have our own code of conduct for CPAs in the tax preparation area.” It is hard to comment at this stage, he added, as to whether the recommendations will affect the ethics of the profession. “The specifics still need to be spelled out,” said Mr Karl.

Commissioner Shulman plans to meet with licensed tax preparers such as enrolled agents, certified public accountants, and attorneys, as well as unlicensed tax preparers prior to making his recommendations. He will also seek input from software vendors.