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IRS Cracks Down on Tax Preparers

Stocks in this article: HRB WMT JTX

How the new regulations will play out for firms such as H&R Block (HRB) and Jackson Hewitt Tax Service (JTX) is unclear.

H&R Block has 13,000 U.S. locations, a third of which are franchises. Jackson Hewitt enters 2010 with 6,000 store-front and retail locations nationwide, including more than 1,800 in Wal-Mart (WMT) stores as part of an exclusive arrangement. Liberty Tax Service, a privately owned company, has 3,400 offices and employs 15,000 preparers.

Sheila Cort, vice president of corporate communications for Jackson Hewitt, says her company supports the IRS initiative and has "tools in place to monitor our tax-preparer training and testing."

Stricter standards may be a drain on seasonal preparers. H&R Block, for example, has 9,200 full-time, year-round employees, a number that swells to 133,700 during peak tax season. Conversely, the changes could benefit well-known firms and their massive footprint at the expense of mom-and-pop shops that may have fewer resources for additional employee training.

The initiatives announced this week will take several years to implement and won't be in effect this year. There will, however, be immediate efforts.

Starting this week, the IRS will send letters to almost 10,000 tax-return preparers nationwide with a large volume of returns and frequent errors. Many of those who receive letters may get follow-up visits from revenue agents.

-- Reported by Joe Mont in Boston.

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