New IRS Rules in Play for Third Party Tax Preparers

If you typically are a little apprehensive about leaving the preparation of your tax return in the hands of a third
party preparer, then you can ease up a little on the fretfulness.

The IRS has made recent moves designed to improve the quality of the tax preparation industry, as well as to strengthen their own oversight with regards to paid preparers.

Starting in 2011, new regulations called for all preparers to register for a Preparer Tax Identification Number (PTIN). This nine-digit number must be used on all tax returns that are prepared by third parties, including attorneys, certified public accountants and enrolled agents. To date, more than 700,000 individuals have paid the $64.25 annual fee to register for a PTIN.

"We owe it to all taxpayers and the many honest tax return preparers to remove the relatively small number of bad actors from the tax preparation industry," said IRS Commissioner Doug Shulman in his April 25 press release. "Just one unscrupulous tax return preparer can cause a lot of financial damage to both taxpayers and the tax system."

One of the advantages of standardizing the reporting requirements is that the IRS can now identify and block those tax preparers who have criminal tax convictions or who have injunctions filed against them by the Office of Professional Responsibility (OPR).

OPR reports directly to the Attorney General and is tasked with investigating allegations of misconduct involving those who litigate or provide legal advice. If OPR files an injunction against a tax preparer, the preparer is legally barred from submitting tax returns on behalf of a taxpayer. In most cases, this is because they have repeatedly filed erroneous tax returns or made fraudulent claims.

Because these individuals must now identify themselves when registering for a PTIN, the IRS can level the playing field by isolating and removing criminal preparers.

According to the press release, the PTIN registration is the first step in a multi-year effort by the IRS to provide some much needed regulation to the tax preparation industry. Starting this fall, certain paid preparers will be required to pass a new competency test. The IRS will also conduct background checks on paid preparers. Additionally, expected to start in 2012, some paid preparers must have 15 hours of annual education.

Currently, although certified accountants and attorneys already must adhere to professional standards before being licensed, only enrolled agents are authorized to practice directly by the IRS because they have passed certain competency tests or due to their past experience serving as IRS employees.

More from this Contributor:

Representation before the IRS - What you need to know

Tips for choosing a tax professional

How to think and act like a tax lawyer