IRS rules are changing for paid tax preparers

Filing your taxes is getting so complicated that even the commissioner of the Internal Revenue Service hires somebody to do it.

"I use a preparer," Doug Shulman said in an interview on C-SPAN last weekend. "I find it convenient and I find the tax code complex, so I use a preparer."

Turns out he’s not alone. Around 80 percent of Americans seek help with their taxes. Roughly 60 percent use a paid preparer and 20 percent use tax software, Shulman said. The IRS estimates that there are 900,000 to 1.2 million paid tax preparers in the country.

Those preparers include professionals like certified public accountants, tax lawyers and enrolled agents who undergo years of education, background checks and continuing education. Or, it could be someone with little or no credentials working out of a temporary storefront or a spare bedroom in their house.

"Right now there are no minimal standards," Shulman said.

That’s about to change.

Having studied the issue since June, the IRS announced sweeping changes last week to regulate paid tax preparers. The action could be good for consumers.

Among the changes, preparers will have to:

Register and pay a user fee. Upon registration, the IRS will perform a tax compliance check to make sure preparers have filed and paid their own federal personal, employment and business taxes. From that registration, a database will be available to the public to check preparers.

Pass a competency test. Three different tests covering individuals, small businesses and larger businesses will be created by the IRS. A transition rule will give preparers up to three years to pass the test. While attorneys, CPAs and enrolled agents won’t have to take the test, the IRS said it will be studying their accuracy to make sure the exemption is warranted.

Take continuing education. Preparers will be required to complete 15 hours each year — three hours of federal tax law updates, two hours of tax ethics and 10 hours of other federal tax law topics.

Be subject to ethical standards. The IRS is recommending that all signing and nonsigning tax preparers be subject to Treasury Department standards for unethical and unprofessional conduct, with the same disciplinary measures for infractions.

The regulations, which will start being rolled out next year, could have a big effect on the tax preparer industry, said Tom Karsten, an enrolled agent and owner of Karsten Tax and Financial Management in Fort Worth.

"I think it’s pretty significant for consumers and consumer protection," said Karsten, who has prepared tax returns for 18 years. "The test is not going to be terribly hard, but it will be taking out the most poorly trained preparers straight out of the pool."

Jim Keller, senior tax analyst at the Fort Worth office of Thompson Reuters, said the IRS action is a way to push oversight of individual returns down to the preparer level.

"I think this is an effort to deal with the brain drain at the IRS," he said. "In the next five to 10 years, there is going to be a hefty exodus of IRS employees. At the same time, the agency is being asked to do a lot more than they used to do."


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