New Regulations Change Definition of “Legal” Tax Preparer

The Internal Revenue Service believes tax submission is a troubled industry and blames it for too many cases of fraud, mistakes and revenue lost.

California, Oregon and New York are the only three states that oversee its paid tax specialists; however, starting January 1, 2011, the IRS is implementing a federal registration program similar to what California already requires.

“Beauticians in most states have to be licensed, yet the majority of tax specialists nationwide, who handle one of the most important documents for consumers each year do not have to be educated or insured,” said Celeste Heritage, administrator for the California Tax Education Council (CTEC), which oversees a state requirement to register unlicensed tax filing specialists.

California requires anyone who assists with or professionals tax returns for a fee and is not an attorney, certified public accountant (CPA) or enrolled agent (EA), to complete 60 hours of qualifying education, purchase a surety bond and register with CTEC. After initial registration requirements are fulfilled, CTEC-registered tax specialists (CRTPs) must complete at least 20 hours of tax education each year.

“From CTEC’s standpoint, the reasoning has always been that some education is better than no education,” said Heritage.

Under the new federal regulation, tax service providers who assist with or prepare federal tax returns for a fee (attorneys, CPAs and EAs are exempt) will be required complete at least 15 hours of tax education each year and eventually pass an IRS competency exam.

Additionally, all tax preparers (includes attorneys, CPAs, EAs) must register with the IRS and obtain a Preparer Tax Identification Number (PTIN). The purpose of the PTIN is to help the IRS differentiate between the good, the bad and the incompetent tax preparers.

Proponents of the IRS regulation believe enforcing tax education and competency exams for tax preparers is a necessary step in order to increase the protection of taxpayers. Skeptics argue it is not tax preparers who are entirely to blame, but the complex tax code that is causing issues and mistakes.

“Tax law is the same no matter who you go to,” said Alan Shattuck, CPA and CTEC board member. “No tax preparer can guarantee you a refund or the biggest refund. Tax law, when implemented correctly, should always have the same results.”

The results are far from consistent or accurate, according to the IRS, and it is preventing the government from getting the tax revenue it is owed.

Right now there are no plans to eliminate the state tax preparer programs so taxpayers in California, Oregon and New York will need to verify their tax preparer has met state and federal requirements.

Taxpayers should beware of tax preparers who:

• Refuse to sign the tax return
• Refuse to give clients a copy of the tax return
• Charge a fee based on a percentage of the refund
• Promise a refund before reviewing clients’ tax information
• Ask to sign a blank tax form to be filled in later
• Do not have a written privacy policy
• Does not have a valid IRS Preparer Tax Identification Number (PTIN)

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