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IRS Enforcing New Rule to Ban Preparers Convicted of Tax Crimes

The IRS announced this week that it has begun enforcing new rules for tax preparers meant to stop those who have been convicted of tax crimes and those subject to permanent injunctions from continuing to prepare federal returns. The new rule requires federal tax preparers to register with the IRS and obtain a Preparer Tax Identification Number (PTIN), which must be used on all returns and claims for refunds.

Professional tax preparers must use the PTIN in order to legally prepare federal tax returns, and the number must be renewed annually. If the preparer is found to be subject to a permanent injunction or to have been convicted of a tax crime, the IRS can revoke the number.

More than 700,000 tax preparers nationwide have already registered with the IRS, and the agency reports that it is still processing about 2,000 PTIN applications each week. Anyone who prepares all or substantially all of a federal tax return for compensation must register and obtain a PTIN.

"Hundreds of thousands of tax return preparers, the vast majority, play by the rules every filing season. The IRS is committed to ensuring they have a level playing field," said IRS Commissioner Doug Shulman. "Compliance with regulations that require the signing of a tax return by a paid preparer and use of the PTIN is central to our enforcement effort."

A number of banned tax preparers already discovered by new system

After comparing the PTIN registry with another database managed by the IRS's Office of Professional Responsibility, the agency has already identified 19 tax preparers with permanent injunctions or an undisclosed criminal tax conviction. Permanent injunctions are court orders to stop preparing tax returns that are issued against those proven to have repeatedly filed inaccurate or fraudulent tax returns.

The IRS has sent letters to the 19 tax preparers notifying them that they have 20 days to file a written response with documentation to contest the revocation of their PTINs.

The next step in the IRS's enforcement effort will be a series of reviews and audits of returns where the tax preparer did not include a PTIN or did not sign the return. The agency is also piloting methods to identify tax returns that appear to have been professionally prepared but which do not indicate a preparer.

The registration and PTIN requirement is just the first of a series of steps the IRS is taking to improve the quality and oversight of the tax preparation industry. Other efforts include requiring competency tests and continuing education for tax preparers and performing background checks on certain paid preparers.

"Just one unscrupulous tax return preparer can cause a lot of financial damage to both taxpayers and the tax system," said Shulman. "We owe it to all taxpayers and the many honest tax return preparers to remove the relatively small number of bad actors from the tax preparation industry."

Source: IRS press release, "IRS Begins Enforcement of New Return Preparer Rules," April 25, 2011

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