TIGTA on Tax Preparers

Tax blogs and message boards have been alive lately on the subject of tax return preparer registration/testing/licensing. While I think it is a necessary step, I'm taking a wait and see position. There has been so much discussion for the last 6 years yet there is still no law. But momentum seems to be building with the IRS's public hearing and the recent Treasury Inspector General For Tax Administration (TIGTA) survey (reference #2009-40-098).

TIGTA has cited inadequate data as an impediment to effective preparer oversight. The IRS's Strategic Plan 2009-2013 includes the objective of all tax practitioners and 3rd parties adhering to professional standards and following the law. TIGTA surveyed the 2008 returns of 139 tax preparers and found systemic problems. First, half of the preparers submitted 6 or fewer returns. This raised concerns that the paid preparer section is being filled out by people who are only filing returns for family and friend. I would caution against ruling out someone as a paid preparer based on number of returns completed. Some of the worse returns I have heard of were done by "preparers" at car lots and pawn shops. They would not have a large count (especially in a small town) but they can do big damage. 

TIGTA also found issues with the ID numbers being used. 6% of the preparers gave an invalid number. Multiple numbers were used in various combinations 67% of the time. As a return preparer, I have the option of using my Social Security number or a Preparer Identification Number (PTIN) for identification a return I prepare. I choose to use the PTIN for my safety. Also in the Paid Preparer section is a line for an Employer Identification Number (EIN). This identifies the business. When I was an employee, returns I signed used the bosses EIN. Now, they use mine. In the TIGTA survey, 93 of the preparers used various combinations of numbers. This is made worse by the IRS's computers. 24 preparers could not be found in any computer. The IRS uses over 20 systems which are not integrated. TIGTA found differences in preparer names and addresses across the systems. Part of their solution would be to require the use of PTINs and to enforce the use of an ID on the return. TIGTA also suggests the development of a system to ID and track tax preparers. This will of course be necessary when tax preparer licensing does become law. I have often wondered why a matching system couldn't be used with PTINs and the preparer name (this is done with names and SSNs of the taxpayers and dependents). But the current IRS can't do this.

The most interesting recommendation TIGTA is making concerns the preparers own tax returns. 5% of the survey preparers were not up to date with filing their returns or owed taxes. Currently, Enrolled Agents, CPAs and attorneys are required to stay current with their taxes to keep representing clients. No one else does. I am sure this will become part of any enforcement when licensing goes through. I don't see it happening before that.

I am in favor of licensing tax preparers but only if Congress is willing to shell out money to do it right. I have been talking about an strong educational campaign so taxpayers know what a preparer can and can't do. It now looks like some serious money needs to be set aside for computer integration. Otherwise, enforcement will be a joke.