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Published: Wednesday, 12/8/2010

IRS to begin regulation of tax preparers

MILWAUKEE -- For the first time, the Internal Revenue Service will oversee paid tax-return preparers to make sure they know what they're doing.

Although many returns are completed by professionals such as certified public accountants, lawyers, and tax specialists known as enrolled agents, the rules have allowed anyone skilled at math and understanding detailed forms -- and some who aren't -- to sell tax-preparation services.

The IRS is trying to find out exactly who is being paid to prepare taxes in the United States, and it plans to follow up by requiring them to be competent and up to speed on tax laws. The federal agency says more than 60 percent of taxpayers use paid preparers.

"There are many, many, many, many thousands -- if not hundreds of thousands -- of dedicated people who are professional and work hard and prepare accurate tax returns," said David Williams, head of the new IRS Return Preparer Office. "It's also true that there are many unscrupulous preparers out there who take advantage of taxpayers, who file erroneous returns, and who, frankly, disappear when the taxpayer is contacted by the IRS -- leaving the taxpayer to clean up the mess."

The IRS will start by requiring anyone who has a hand in preparing federal tax returns for a fee -- including lawyers, accountants, and their staffs -- to register online at irs.gov/taxpros/ for a preparer tax identification number.

The number will be required for all returns completed by paid preparers in 2011. Even those who already have an identification number must register to have the number reissued and pay $64.25 to do so. Paid tax preparers who don't comply can be fined.

Later, the IRS will require testing and continuing education. Those are intended mostly for seasonal tax preparers, bookkeepers, and others; accountants and lawyers -- who already are licensed and regulated and undergo continuing instruction -- are exempt from that part of the initiative.

Some tax professionals contend that an annual fee to maintain an identification number just creates an additional expense for them -- an expense that ultimately will be passed along to customers.

"It's a good idea that's kind of gone wrong, in our opinion," said Ann Przybysz, a senior tax accountant with Sattell, Johnson, Appel & Co. in Menomonee Falls, Wis.

While it's prudent for the IRS to require heretofore unregulated tax preparers to be tested and trained about tax laws, that $64.25 annual fee will have to be applied to almost everyone on staff at full-time professional firms as well, she said.

The firm where she works has about 40 employees. "We already pay our fees to remain licensed CPAs or licensed attorneys," Ms. Przybysz said.

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