IRS may regulate tax return preparers

Internal Revenue Service (IRS) Commissioner Douglas Shulman told members of an oversight subcommittee of the U.S. House of Representatives Ways and Means Committee last week that by the end of the year he would submit to the Treasury Secretary and the President a "comprehensive set of recommendations" that may include new regulations for tax return preparers. These recommendations would be designed to increase compliance and ensure ethical standards. The IRS will launch a review of tax return preparers that in the early stages will include input "from the broadest possible range of stakeholders," Shulman said.

"Tax return preparers help Americans with one of their biggest financial transactions each year. We must ensure that all preparers are ethical, provide good service, and are qualified," Shulman said. "At the end the day, tax preparers and the associated industry must be part of our overall game plan to strengthen the integrity of the tax system."

Shulman told the committee there is no reliable estimate of how many tax return preparers are in operation, and options for regulating them include requiring better education and training, as well registration and licensing.

Shulman said that any recommendations he makes may require changes to the law. "This is nothing less than a transformational shift," he told reporters later, according to Bloomberg.com.

Representative John Lewis, (D-GA), chairman of the subcommittee, supports adoption of Shulman's proposal. "We have to do something. In many communities, especially in low-income communities, we have these fly-by-night people who set up and they prepare people's returns and at the end of the season they go out of business."

Richard Breedon, chairman of H&R Block, expressed his company's strong support for Shulman's initiative. Because H&R Block is the biggest nationwide tax company and is already closely monitored, "It would likely benefit under any boost in oversight," Scott Schneeberger, an analyst at Oppenheimer, told Reuters. "The regulation would be hardest on the large swath of small tax preparation companies."

Initially, the IRS plans to consult a large and diverse constituent community that includes preparers who are licensed by state and federal authorities - such as enrolled agents, lawyers and accountants - as well as unlicensed tax preparers and makers of tax preparation software. They will also seek input and dialog with consumer groups and taxpayers.

Representative Xavier Becerra (D-CA) said he plans to reintroduce legislation that would impose new standards upon preparers and asked Shulman whether he would consider going beyond registration to ensure some level of competency, Reuters reports.

"For me, everything is on the table," Shulman said.

Later this year, the IRS plans to hold a number of open meetings in Washington and around the country with constituent groups.

Read opinions on both sides of this controversy:
 

• The case for not regulating unlicensed tax preparers
  
• The case for regulating unlicensed tax preparers