The IRS wants to start regulating paid tax preparers used by more than half the nation's taxpayers in an effort to reduce fraud and errors.
New rules could require education and training as well as licensing for people who get paid to prepare returns, IRS Commissioner Doug Shulman said Thursday.
"In most states, anyone can charge to prepare tax returns regardless of training, education, experience, skill, licensing or registration," Shulman told reporters. "Virtually anyone can set up a tax return business."
Shulman said most tax preparers provide quality work, but some are poorly trained or unscrupulous. The IRS, however, can't say how many fall into either group because the agency doesn't track the number of complaints filed against tax preparers or their outcomes, according to a report issued in February by the Treasury Inspector General for Tax Administration.
The IRS doesn't even know how many individuals or companies prepare returns for taxpayers, Shulman acknowledged.
From 2006 through 2008, the IRS initiated more than 600 investigations of fraud among tax preparers. During that time, 356 tax preparers were convicted, with more than 80 percent of them sentenced to prison, home confinement or electronic monitoring.
But when the IRS detects a fraudulent return, it's the taxpayer -- not the tax preparer -- who must pay the additional taxes, interest and any penalties, according to the IRS.
Shulman said he will seek suggestions for new rules from the industry and consumer groups before making his proposals to President Barack Obama and Treasury Secretary Timothy Geithner by the end of the year. The proposals could include new regulations or laws.
"I want to enter this with an open mind," Shulman said. "For me, everything's on the table."
Shulman said new rules would give him better leverage to make sure tax preparers act ethically, not only to improve enforcement, but to ensure taxpayers get quality help in preparing their returns.
"When people pay good money, they should not get bad advice," he said.
About 60 percent of taxpayers pay someone to prepare their returns, Shulman said. An additional 20 percent or so buy computer software. However, tax preparers don't have to be licensed, unless they represent clients in proceedings before the Internal Revenue Service.
Industry giant H&R Block, based in Kansas City, Mo., welcomed Shulman's initiative, as did several members of Congress.
"We believe that all tax assistance providers should be trained and licensed as necessary," said Richard C. Breeden, Chairman of H&R Block. "We also strongly support requirements that anyone providing tax preparation services should have the systems in place to ensure full legal compliance and consistently high ethical practices."
Rep. John Lewis, D-Ga., said low-income taxpayers are often taken advantage of by "fly-by-night" tax preparers who set up shop in storefronts, only to go out of business after tax season.
"If they have problems, they cannot be located," said Lewis, chairman of a House subcommittee that oversees the IRS. "We're going to find a way to deal with it."
Registering tax preparers would enable the IRS to track the ones with problems, said Paul Cinquemani, director of government relations for the National Association of Tax Professionals.
"As complex as the tax law is, believe me it doesn't hurt to raise the bar," Cinquemani said. "I don't understand how anyone operates without getting education to stay on top of tax law. It's very complex."
Cinquemani said two kinds of preparers cause problems for taxpayers and the IRS.
"There are the incompetent and there are the unscrupulous," he said. "Some are both."