Don’t let just anyone do your taxes

By Michelle Singletary
Washington Post / April 8, 2010

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In an effort to keep track of the estimated 1.2 million people who prepare tax returns for pay, the Internal Revenue Service is proposing guidelines. Given the complexity of the tax code and the many missteps that can be made in filing a return, this is long overdue.

Currently, any individual can prepare a tax return for a fee. Though some preparers are licensed by states or enrolled to practice before the IRS, many don’t have to pass any kind of test.

When the IRS issued its 2010 “dirty dozen’’ scams, tax-return-preparation fraud topped the list. The agency has found preparers who skim a portion of their clients’ refunds, charge inflated fees, and lure customers by promising refunds — even before reviewing the tax information.

The IRS plans to launch a system this year under which all preparers would be required to register, including those who already have a preparer tax identification number, or PTIN. Currently, preparers must supply either a PTIN or Social Security number on tax returns.

This new requirement would make it easier for the IRS to monitor suspect returns prepared by certain preparers. Last year, the IRS initiated a comprehensive review and concluded that it should establish new eligibility standards, including for testing and continuing education. Registered preparers would also be subject to tax compliance checks on their own returns.

The latter certainly makes sense. If you’re preparing returns, you should certainly be filing your own return on time and paying as required. Recently, a Massachusetts tax attorney was barred from practicing before the IRS for four years for failing to file his federal tax return and for filing five other returns late.

“Professionals who demonstrate a lack of respect for our tax system by failing to meet their own tax filing obligations should not expect to retain the privilege to practice before the IRS,’’ said Karen L. Hawkins, director of the IRS Office of Professional Responsibility.

On the requirement that all preparers apply for a PTIN, I was concerned that the proposal would not be clear about whether all preparers working for larger firms, such as H&R Block and Jackson Hewitt Tax Service, would be covered. At some of the businesses, one person or a small number of people are designated to sign all returns, even though they may not have met, interviewed, or collected information from the taxpayer. It appears the proposal would put an end to the current industry practice.

Under the new guidelines, the term “tax return preparer’’ means any individual who is compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or a claim for a refund. This would include tax preparers who rely on tax software.

Preparers who are required but fail to include their identifying number on a tax return or refund claim, or fail to include the identifying number of any person with whom they have an employment arrangement or association, would be subject to a penalty.

Interested parties have until April 26 to submit comments about the proposed regulations. Send comments about REG-134235-08 to Room 5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044.

You can send an electronic comment to the Federal eRulemaking Portal at Select “proposed rules’’ and under key word put in REG-134235-08.

It’s worth the time to weigh in. A lot of us hire people to do our taxes. Don’t you want to make sure the individual preparing your return has some minimal training and a way for the IRS to track him or her down if your return is inaccurate or fraudulent?

Michelle Singletary writes The Color of Money for The Washington Post.