IRS takes steps to crack down on tax preparers

The IRS wants to know who is preparing your taxes and make sure they are qualified to do it.

"You have to have a license to cut somebody's hair, but you could prepare a tax return ... and be sitting in prison," said Stephen Kirkland of Columbia accounting firm Kirkland, Thomas, Watson & Dyches.

In an unprecedented move, the U.S. government next year will begin regulating the tax preparer industry, which has been a breeding ground for fraud, experts said.

Paid tax preparers starting Jan. 1 must begin using an identification number issued by the Internal Revenue Service on all returns, said David Williams, head of the agency's new Return Preparer Office. The process takes about 15 minutes at irs.gov and a number is issued instantly, he said.

Some firms outsource work to India or prison inmates, Kirkland said.

"Anybody can do it, whether they have any training or preparation," he said. "It's a huge problem."

Tax fraud hit home last year when the federal government sued a Blythewood man and banned him from ever preparing taxes for others again, alleging he filed returns claiming $13 million in fraudulent refunds in 2008.

"Some of these people are fleecing the government for millions of dollars before they get caught," Kirkland said.

More than 60 percent of taxpayers use a paid preparer, Williams said, and they should look for the identification number before the return is submitted.

If a preparer is not using the number, a taxpayer's return still will be processed and a refund will be issued if one is due, Williams said. The IRS will work with the preparer to ensure compliance.

"We do not want to put the burden of this tax compliance on the payer," Williams said.

The identification number is a first step toward accountability in the previously unregulated industry, Williams said. In coming years, preparers who are not attorneys or accountants, for example, will be required to pass competency tests and undergo continued education annually.

The IRS announced plans for regulation earlier this year, but Williams said the business is seasonal and many preparers are just now plugging in to learn about the new rules.

"I'm not a big fan of government regulation," Kirkland said. But, "I absolutely think there needs to be some regulations on preparers. It will protect the taxpayers and the government."