IRS Cracks Down on Unlicensed Tax Preparers

There is something about the tax game few in the public realize. Tax prepares are usually unlicensed. Well, now the IRS is cracking down on them to ensure better service for taxpayers.

What is a tax preparer? Well, we are not talking about a CPA or lawyer. Instead, there is a cottage industry that has bloomed wherein random people just start offering to do the taxes of individuals and businesses for a fee. The problem, of course, is these people are not licensed and usually have a minimum of understanding of the tax code. This, of course, leads to huge problems when the information they put on returns is simply wrong.

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Is this legal? Actually, it is. There is no federal law that bars it. The laws were written to allow you to use a CPA, but also to do the tax forms yourself. It is this second option that creates the loophole for every Tom, Dick and Harry to prepare taxes for other people.

So, what is the IRS doing exactly? Well, nothing for 2010. After that, however, preparers will have to register with the agency. To be registered, the individual will have to pass a competency exam within a three year period. This is where things could get ugly. Most tax prepares at places like H&R Block are taught a method for filling out forms. They don’t really know tax law per se, so this competency exam is going to weed out a lot of preparers.

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Is this move by the IRS a good thing? I think so. The number one reason people get audited is because their tax returns are filled out wrong. By this, I don’t mean some sneaky strategy was used. I mean that the numbers are either computed incorrectly or placed in the wrong spot. By demanding competency of general tax preparers, the agency will be greatly reducing these situations.

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