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IRS Cracks Down on Tax Preparers

BOSTON ( TheStreet) -- The Internal Revenue Service kicked off the 2010 tax-filing season with a stern warning for professional tax preparers and a promise of new registration, testing and education requirements.

As part of a crackdown, undercover sting operations in which IRS agents, posing as customers, will hit the streets to weed out unscrupulous preparers.

According to IRS estimates, more than 80% of American households use a professional preparer or software program to file taxes. Due to a lack of registration and inconsistent reporting, the number of tax-return preparers is unknown, but the IRS estimates there are as many as 1.2 million individuals who prepare tax returns for a fee, including certified public accountants and lawyers, both of whom are exempt from the new regulations.

Each year, hundreds of criminal investigations are initiated against preparers by revenue agents and the U.S. Department of Justice. In 2009, 124 people were sentenced to an average jail time of 18 months.

IRS Commissioner Doug Shulman on Monday described current and future efforts as a "monumental shift in the way the IRS will oversee tax preparers."

Currently, anyone can prepare a federal tax return and charge a fee. While some preparers are licensed by their states, many don't have to meet government or professionally mandated competency requirements before preparing a federal tax return for a fee.

The IRS will require: registering and obtaining a tax-identification number; passing competency tests, except for attorneys and certified public accountants; and continuing education. The agency will be able to suspend or discipline tax preparers who engage in unethical or disreputable conduct.

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