IRS ponders rules to license tax preparers

Contractors, private investigators, barbers and real estate agents are licensed. Should those who prepare income tax returns be licensed?

The Internal Revenue Service wonders. IRS Commissioner Doug Shulman on Thursday said he is considering rules to improve income tax compliance and ensure ethical standards for tax preparers.

"Tax return preparers help Americans with one of their biggest financial transactions each year," Shulman said in a statement. "We must ensure that all preparers are ethical, provide good service and are qualified."

Certified public accountants, enrolled agents and tax attorneys already are subject to regulatory scrutiny and sanctions for unethical behavior, but independent income tax preparers are not licensed.

An enrolled agent and two CPAs expressed varying opinions about the proposal, but attempts to reach unregulated tax preparers failed Thursday. Many are open for business between January and the April 15 deadline for income tax returns.

The idea "has been kicked around before" by government officials, said Robert Stovall, a licensed enrolled agent at Professional Tax Services. Stovall said he cannot form an opinion on the proposed regulation until he has more details than those in the two-page Internal Revenue Service announcement.

He and other professionals believe the IRS is interested in regulating tax preparers who have no license.

Stovall acknowledged the problem with "fly-by-night" tax preparation businesses but said regulation "may be overkill."

Nina Gallagher, senior tax manager at LL Bradford and chairwoman of the tax committee at the Nevada Society of Certified Public Accountants, favors regulation of independent tax preparers.

"I believe that anyone who offers themselves out to prepare tax returns ought to be licensed in some fashion," Gallagher said.

She said it appears to be part of the IRS strategy of getting tax preparers to enforce the Internal Revenue Code by imposing penalties for tax return violations, she said. The agency doesn't have enough staff to audit many tax returns, she said.

However, unlicensed tax preparers "have nothing to lose" for tax violations and often don't sign tax returns as required, she said.

CPA Dennis Meservy said he has seen cases where independent tax preparers not only collected for preparation services on California income tax returns but also promised to send payments to California on behalf of clients -- then disappeared with all the money.

"You only give them the preparation fee," Meservy said. "Anytime you owe a tax, pay directly to the government. Don't pay to the individual."

Meservy fears regulatory overkill: "My concern is that they seem to be overregulating the guys who are already regulated."

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.