In tax year 2011, 42 million tax returns were prepared by unregulated tax return preparers. Because preparers play a critical role in tax administration, the IRS must ensure that they are competent, visible, and accountable. However, the Taxpayer Advocate Service has witnessed widespread problems with competence and ethical standards in the tax preparation industry.
Since 2002, the National Taxpayer Advocate has advocated for a system to regulate preparers. The IRS had developed competency requirements, but in Loving v. Internal Revenue Service the District Court enjoined the IRS from enforcing the testing and continuing education elements of the program. Unless this ruling is overturned on appeal, taxpayers will still find themselves in a world where anyone can hang out a shingle as a “tax return preparer” with no knowledge or experience needed. Until the courts decide the IRS has authority to regulate preparers, the National Taxpayer Advocate urges the IRS to adopt a servicewide return preparer strategy to protect the best interests of taxpayers and tax administration.
Without any regulation, we will continue to see a proliferation of return preparers showing up at check-cashing places, pawnshops, used car dealerships, furniture stores.