Preparers face tough IRS rules

In an effort to curb mistakes in income tax returns and assure paid preparers are qualified, the Internal Revenue Service next year will begin enforcing new regulations.

Until now, most anyone could be paid to prepare someone else's income tax returns without being regulated or having any credentials to do so.

But that will change come the 2011 tax season, when the IRS will require tax return preparers to register with the federal government, pass competency tests and adhere to ethical standards, the IRS announced Monday.

"I think its a great idea," said James Ferguson, a certified public accountant in Yakima. "Tax preparers should be regulated because they could have great impact on how a tax return is filed."

The move to regulate tax preparers comes on the heels of a six-month landmark study that showed more than 80 percent of households in the nation use paid tax preparers, according to a news release from the IRS.

It also gives the IRS power to suspend or discipline tax preparers who do not comply or who engage in unethical or disreputable conduct, the release said.

More than 10,000 letters explaining the new requirements will go to tax preparers across the nation who in the past have made numerous errors in filing tax returns, the news release said.

Many of those receiving letters will also be visited by IRS agents in the coming weeks to discuss the obligation and responsibility of accurate tax returns, the IRS said.

Visits to tax preparers by IRS agents posing as taxpayers will also occur and the IRS will work with the Department of Justice to pursue civil or criminal action when appropriate, the release said.

The changes won't affect certified public accountants, attorneys or enrolled agents who represent taxpayers before the IRS, the release said.

Debbie Grimes, a certified public accountant who owns Affordable Accounting and Payroll Taxes in Union Gap, said requiring tax preparers to register would not only force them to become qualified, but also offer some protection to income tax filers themselves.

"What people don't realize is once they sign that return, they are liable for what's on that return," she said.

Some states, such as Oregon, do have similar requirements for paid tax return preparers, she said.

She said several people come into her office each tax season looking to fix inaccurate tax returns.

"Then they have them come to me and I have to straighten them out," she said. "I get them in every year."

Tax Return Information Center owner David Uhlman in Yakima said the regulations probably won't be much different than the requirements tax preparers need to acquire to become an enrolled agent who represents taxpayers.

To become an enrolled agent himself, he said he took a two-day, four-part test for the certification that's equivalent to CPA or attorney status. His certification has to be renewed every three years.

He said there is a lot to understand and great room for error when filing income tax returns, given the complexity of deductions and earned income credits and annual changes in them.

"The potential for fraud is great," he said. "They've expanded the earned income credit and they've expanded the requirements that we must go through that the taxpayer must meet to prove that his claim is legitimate.

"It's a good thing."

* Phil Ferolito can be reached at 509-577-7749 or pferolito@yakimaherald.com.