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IRS Begins to Enforce New Rules for Tax Return Preparers

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The IRS is tightening the screws on tax preparers in a concerted effort to remove those with criminal tax convictions or permanent injunctions.

The agency said in a statement released on Monday that it had identified 19 tax preparers who applied for Preparer Tax Identification Numbers (PTINs) and failed to disclose a criminal tax conviction or have been permanently enjoined from preparing tax returns. It has sent letters to all 19 individuals, proposing revocation of their PTINS. In turn, they have 20 days to file a written response and provide supporting documentation as to why their PTIN should not be revoked.

More than 700,000 tax preparers nationwide have registered with the IRS and obtained PTINs, the statement said. This nine-digit number must be used by paid tax return preparers on all returns or claims for refund and must be renewed annually.

The IRS’s Office of Professional Responsibility can compare new PTINs against a database it manages to weed out what IRS commissioner Doug Shulman called “bad actors” from the tax preparation industry. “Just one unscrupulous tax return preparer can cause a lot of financial damage to both taxpayers and the tax system,” Shulman said in the statement.

The IRS said that with the end of the tax filing season, it will also initiate a review of tax returns that were prepared by preparers who used an identifying number other than a PTIN, or did not use any identifying number or failed to sign tax returns they prepared. The agency will send notices to those preparers who used improper identifying numbers. It is also piloting methods to help identify returns that appear to be professionally prepared but are unsigned by the preparer.

 “Hundreds of thousands of tax return preparers, the vast majority, play by the rules every filing season,” Shulman said. “The IRS is committed to ensuring they have a level playing field. Compliance with regulations that require the signing of a tax return by a paid preparer and use of the PTIN is central to our enforcement effort.”

The IRS is still registering approximately 2,000 preparers a week. Anyone who prepares for compensation all or substantially all of any federal return or claim for refund must register for a PTIN and pay a $64.25 annual fee.

The agency said PTIN registration is the first step in its multi-year effort to provide standards for and oversight of 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 certain paid preparers. And starting probably in 2012, certain paid preparers must have 15 hours of continuing education annually.

Certified public accountants, attorneys and enrolled agents are exempt from the competency testing and continuing education requirements because of similar professional standards already applicable to those groups. Supervised employees of these exempt groups also are generally exempt.