IRS to use tax preparer data to identify patterns of fraud

The IRS has registered over 840,000 tax return preparers and has begun the process of administering competency tests for those who are not a CPA, attorney or enrolled agent.  Paid preparers who fall outside of these three groups will also be required to take 15 hours of continuing professional education annually from IRS-approved vendors.  IRS Commissioner Doug Shulman has stated:

“One of the most important tasks millions of Americans have been tackling, and will be tackling over the next two weeks, is preparing an accurate and timely tax return.  However, over the past 20 to 30 years, the way that taxpayers go about filing their taxes has dramatically changed. Today, more than 9 out of 10 taxpayers use a paid tax preparer or tax software. Despite the fact that paying taxes is one of the largest financial transactions that the average American family has each year, when I arrived at the IRS, there were no basic competency requirements for tax return preparers. In fact, while in most states you need a license to cut someone’s hair, just a few years ago almost anyone could prepare a federal tax return for any other person for a fee, regardless of their level of experience or knowledge of the tax law.”

In addition to promoting basic competency, this increased attention on paid preparers has another benefit.  The IRS has begun focusing enforcement efforts at the preparer level.   The IRS intends to use data analytics to highlight the areas of greatest non-compliance and identify repeat offender preparers by linking tax returns to preparers in a comprehensive way.  This allows the IRS to deal with compliance issues on a much broader level rather than addressing each taxpayer individually.

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  1. It is worth noting that California was years ahead of the federal government in having licensing and education requirements. In addition most of the household brands of tax preparation companies have their own in-house annual training requirements for the purpose of risk management. While the new federal licensing requirement will make it easier to track individual professionals for patterns of abuse the practice of reviewing all returns done by a particular professional is not new.

    • thefightbetting on September 28, 2012 at 4:18 PM
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