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IRS gets tough on tax preparers

Rico Gagliano Jan 8, 2010

IRS gets tough on tax preparers

Rico Gagliano Jan 8, 2010


TESS VIGELAND: Well it’s barely the new year, but this week the kind souls at the Internal Revenue Service decided to get our minds thinking about tax time. Thanks, guys!

All right, so if you’re one of the people who pays someone else to do your taxes, listen up. The IRS estimates there are at least a million people in this country who do tax-prep for a living. And a big chunk of them are “unenrolled,” meaning they don’t have any official credentials. They’re not required to get a license or even to be educated in tax law. And here’s the kicker, if they make a mistake on your tax form? You are liable for it. Sound like a problem? Uncle Sam thinks so, and some new rules are on the way. But not in time for this tax season.

Rico Gagliano reports.

Rico Gagliano: Mickey Reedy is an “enrolled” tax agent. That means he’s licensed to represent taxpayers during an IRS audit. So he’s got lots of stories about clients who ended up in hot water, thanks to unscrupulous tax preparers.

Mickey Reedy: The worst one was a client that I had under audit. This woman had come to the United States from Sweden. She understood the tax circumstances, but not well. The return had been prepared by a supposed professional, although he did not sign the return, which was one big indicator to me that there was something wrong.

Some other big indicators? Well, there’s the fact the preparer would only take payment in cash. And that he put Reedy’s client down for $45,000 in entertainment write-offs.

Reedy: I asked the client, I said, “What did you spend $45,000 on?” And she said, “I never spent $45,000 — $450 maybe.”

Reedy says the IRS opened a criminal investigation against this particular preparer. But now they’re hoping to prevent rogues from getting into the tax biz in the first place, by holding all preparers to new federal standards.

IRS spokesman Raphael Tulino says some tax professionals are already regulated.

Raphael Tulino: An enrolled agent or a CPA or a tax attorney adheres currently to rigorous standards in order to do what they’re supposed to do in the eyes of the IRS. Unenrolled preparers don’t have that at this point. In future years, beginning this year, they will.

The new rules, which roll out over the next two to three years, subject unenrolled preparers to three new requirements. First, they’ll have to pass a standardized test. Then, they’ll have to register with the IRS. And third, they’ll have to undergo continuing tax education.

Tulino: They will need to keep themselves up to speed with the changes in tax law, with the changes in preparing returns, and will have to continue to do so in order to be a preparer.

The IRS is calling for 15 hours of tax law and ethics study per year. Enrolled agent Mickey Reedy says that’s a good start, but:

Reedy: What I would like to see is a push towards a more stringent exam, more education. Personally, I get 100 hours a year. I feel I need that.

In any case, until the new rules kick in, the IRS says taxpayer beware. Avoid preparers who promise you a huge refund. Steer clear of the ones who base their fee on how much of a refund they can get you. And check your tax preparer’s credentials, ’cause the IRS isn’t doing that for you, yet. In Los Angeles, I’m Rico Gagliano for Marketplace.

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