With Tax Return Preparer Fraud and Tax Schemes on the Rise, IRS Looks at New Model For Regulation of Tax Preparers
Return preparer fraud made this year’s IRS Dirty Dozen list of common scams taxpayers should avoid. In this down economy, the promise of large refunds may seem tempting to taxpayers, but victims of tax schemes will end up facing more tax problems in the long run.
Dishonest tax return preparers are scam artists that skim money from their clients’ refunds and charge inflated fees for return preparation services. They attract new clients by promising large refunds.
While 80% of taxpayers use a paid preparer or third-party software for tax prep, IRS says only a few states regulate unenrolled agents. So taxpayers should choose carefully when hiring a tax preparer – especially if they are promising something that seems too good to be true. And if you owe the IRS more than you can afford to pay, know that there are ways to resolve your tax debt!
CCH (http://tax.cchgroup.com/) reports:
IRS Commissioner to Make Recommendations on Regulation of Tax Return Preparers by Year End; Plans Nationwide Review (IR-2009-57)
The IRS announced that it will propose a comprehensive set of recommendations to help increase taxpayer compliance and ensure uniform and high ethical standards of conduct for tax preparers. Some of the potential recommendations could focus on a new model for the regulation of tax return preparers, service and outreach for return preparers, education and training of return preparers and enforcement related to return preparer misconduct. The recommendations are expected to be submitted by the end of the year. According to IRS Commissioner Doug Shulman, who commented on the announcement an IRS conference call on June 4, over 80 percent of taxpayers either use a paid preparer or third-party software to complete their tax return. In light of this huge number, “it’s time we take a serious look at this issue.” He added that “it’s been years since the IRS had undertaken a wide review of issues involving tax preparation.”
Only a few states regulate unenrolled agents. Shulman pointed out that “no national framework exists; there is a large number of unenrolled preparers not operating under any standards at this point.”
Recommendations by Year End
Shulman reported that the first of the IRS’s review of the tax preparation community will involve “fact-finding and receiving input” from a large a diverse constituent community that includes individuals such as enrolled agents, lawyers, accountants and other licensed tax professionals, as well as unlicensed preparers and software vendors. The IRS will also hold meetings in Washington, D.C. and around the country to review and discuss issues associated with the tax preparation community.
“This review will look at issues surrounding the regulation of tax preparers,” Shulman said, since “right now there is no clear national standard of regulation for paid tax return preparers.” The review group “will explore the options and practicality of a new model of regulation.”
According to Shulman, the review will also look at:
–Options and methods for service and outreach to preparers; and
–Approaches for timely/appropriate enforcement related to preparers.
Although Shulman said that the “IRS can’t do the review without taking into account software and software providers,” the “focus of review is preparers.”. However, both preparers and software providers need to become a more integral part of the tax administration system. “The review and resulting recommendations will help on that path,” Shulman said.
No Numbers for Preparers
According to Shulman, estimates of return preparers doing business in the U.S. have ranged from 600,000 to 900,000 but there are “no good estimates.” Testifying before the House Ways and Means Subcommittee on Oversight earlier in the day, Shulman admitted that the IRS could not say how many income tax preparers are currently doing business in the U.S. (TAXDAY, 2009/06/05, C.1)
Possible End Game
Shulman said that nothing was “off the table” in terms of the results of its recommendations to President Obama and Treasury Secretary Timothy F. Geithner. The “obvious range includes from standards of ethical conduct to training and education requirements, to licensing and registration requirements,” he said, adding that the Office of Professional Responsibility (OPR) will be part of the review. He forecasted that, based on some findings, “there very well may need to be legislation.” However, he emphasized in his predictions that the IRS would likely to be able to more forward on many recommendations under its current administrative powers, without further legislation.
Long-Standing Problem
As to why such action regarding the tax preparer community has taken so long, Shulman was less clear. The lack of regulation of unenrolled return preparers has been a long-standing problem. The National Taxpayer Advocate has cited the lack of regulation for unenrolled preparers in its annual reports to Congress and, as recently as 2008, listed it as one of the most serious problems encountered by taxpayers.
TIGTA Applauds Move
Following Shulman’s announcement, Deputy Inspector General for Audit at the Treasury Inspector General for Tax Administration (TIGTA) stated that “we are encouraged by the Commissioner’s proposal to review the IRS’s existing oversight of tax preparers and to include the preparer community in the review process.” TIGTA has issued three separate reports over the past 10 months making recommendations of immediate steps the IRS could take to improve oversight of the tax return preparer community. These recommendations include:
–Requiring preparers to use a single identification number when filing tax returns to allow the IRS to control and track preparer activities;
–Determine the actual number of paid tax preparers;
–Improve IRS processes for handling complaints filed by the taxpayers regarding tax preparers; and
–Establishing written procedures for controlling and reviewing referrals of licensed preparers who have been penalized for abusive tax shelter violations.
By H. Goehausen, CCH News Staff
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Tags: doug shulman, IRS disputes, tax debt, tax expert, tax preparation, tax pret, tax problems, tax relief, tax resolution, tax resolution expert, tax resolution services, tax return preparer fraud, unenrolled agents
