The plan, which IRS Commissioner Douglas Shulman said will take several years to implement, will require paid tax preparers to pass a competency test and supply an identification number when filing clients’ returns. The rules aim to stop fraudulent and untrained preparers from scamming the government and consumers, the IRS said.

H&R Block and Jackson Hewitt, the largest and second- largest U.S. tax preparers, expressed support for the plan.

“We think if the focus shifts to who has the highest standards, that’s good for us,” said Kathryn Fulton, a lobbyist in Washington for Kansas City-based H&R Block. The company filed 21.1 million tax returns last year, or about 15.8 percent of all returns.

Shulman, in a conference call with reporters, said the plan is intended to “ensure all preparers are ethical, that they provide good service and that they are qualified.” He added, “It adds up to a groundbreaking approach for our nation’s tax system.”

Sixty-one percent of individual tax returns are handled by paid preparers, according to IRS Taxpayer Advocate Nina Olson, the chief ombudsman for U.S. taxpayers, who has recommended licensing of preparers since 2002. There are between 900,000 and 1.2 million paid preparers nationwide, the IRS said today.

Small Preparers

UBS AG analysts Andrew Fones and Margaret O’Connor issued a report that said the IRS initiative will help H&R Block by preventing small preparers from entering the market and driving others out of it.

“We think the regulations could be a boost for Block starting” in 2011, the analysts said.

Preparers will be required to renew their registration every three years, Shulman said. Those who aren’t lawyers or certified public accountants will have to complete at least 15 hours of continuing education annually. The IRS said it will create a public database of registered preparers for consumers.

Sheila Cort, vice president of corporate communications for Parsippany, New Jersey-based Jackson Hewitt, said the company already applies its own standards, including testing and continuing education requirements.

Compliance Standards

“We support this IRS initiative to improve and increase compliance standards, requirements and expectations for the individual income tax return preparer community,” Cort said.

Martha O’Gorman, chief marketing officer for Virginia Beach, Virginia-based Liberty Tax Service, said the privately held firm created testing requirements for its preparers in anticipation of the IRS action. “We believe it is a good thing for the industry in general,” she said.

The plan is a “strong proposal that will go a long way toward getting the incompetent and unscrupulous preparers off the street,” said Jeff Trinca, former chief of staff of a congressional panel that helped restructure the IRS in 1998. “Now it will come down to enforcement.”

While the registration requirements won’t take effect for several years, the IRS will begin cracking down on dubious preparers this year, Shulman said. Letters have been sent to 10,000 preparers where the IRS has seen a pattern of problems, he said.

Undercover Agents

The agency also is sending agents, including some undercover, to visit paid preparers to ensure they’re giving proper advice, the commissioner.

Shulman said the IRS will create a special working group to study banks and tax preparers that offer so-called refund anticipation loans, or advances of tax refunds.

Such products are popular with taxpayers who don’t want to wait the usual two or three weeks for the IRS to send checks. The loans have been criticized by consumer groups because they can carry effective interest rates in the triple digits.

Jackson Hewitt plunged 23 percent on Dec. 24 after its bank partner, Santa Barbara Bank & Trust, stopped funding such loans. The Office of the Comptroller of the Currency told the bank Dec. 18 that it wouldn’t receive regulatory approval to originate the refund loans in 2010.

H&R Block rose 4 cents to close at $22.66 in New York Stock Exchange composite trading. Jackson Hewitt rose 3 cents to $4.43.

Source Business Week

The new regulations, announced Monday, will not be in effect for the current filing season — individual tax returns are due April 15. But IRS Commissioner Doug Shulman said tax preparers will be held to higher standards in future years as the IRS steps up its oversight.

“As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year,” Shulman said. The new regulations “will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation’s tax system.”

Existing preparers will be given three years to meet competency requirements.

More than 80 percent of taxpayers use a paid tax preparer or tax software to complete their yearly returns. However, paid tax preparers are unregulated in many states, unless they are also lawyers, certified public accountants or enrolled agents who represent taxpayers before the IRS. Lawyers, certified public accountants and enrolled agents will not be affected by the new regulations.

The IRS announced in June that it wanted to start regulating paid tax preparers. The agency then held a series of public hearings to gather information, leading up to Monday’s announcement.

“The lesson is that fighting a war, cutting taxes and funding a major new entitlement program all at the same time doesn’t work.”

“This is putting the American taxpayer on a collision course with higher taxes”

A good or bad thing? At the very least, the individual should always be planning ahead: business operations-wise, estate planning-wise, and investment-wise

* 100% of your cash, investments, and accounts receivable, plus
* the realizable value of your vehicles, real estate, and personal assets (minus allowances), plus
* your monthly disposable income over a period of 48 months or 60 months (depending on how you are going to make your offer payments).

Section 7203 of the Internal Revenue Code permits the IRS to charge you with the “willful failure to file a tax return.” The statute subjects you to a risk of being guilty of a misdemeanor and a $25,000 penalty ($100,000 in the case of a corporation), and imprisoned for not more than one year. If the failure to file is “willful” the charge is a “felony” and the imprisonment is up to five years.

YOU ELIMINATE THE RISK OF IMPRISONMENT IF YOU VOLUNTARILY FILE YOUR TAX RETURNS, and payment of your tax liability.

1. Offers will be accepted: The Service will accept an offer in compromise when it is unlikely that the tax liability can be collected in full and the amount offered reasonably reflects collection potential. An offer in compromise is a legitimate alternative to declaring a case currently not collectible or to a protracted installment agreement. The goal is to achieve collection of what is potentially collectible at the earliest possible time and at the least cost to the Government.

2. In cases where an offer in compromise appears to be a viable solution to a tax delinquency, the Service employee assigned the case will discuss the compromise alternative with the taxpayer and, when necessary, assist in preparing the required forms. The taxpayer will be responsible for initiating the first specific proposal for compromise.

3. The success of the compromise program will be assured only if taxpayers make adequate compromise proposals consistent with their ability to pay and the Service makes prompt and reasonable decisions. Taxpayers are expected to provide reasonable documentation to verify their ability to pay. The ultimate goal is a compromise which is in the best interest of both the taxpayer and the Service. Acceptance of an adequate offer will also result in creating for the taxpayer an expectation of and a fresh start toward compliance with all future filing and payment requirements.

WARNING: If the IRS perceives that an OIC is a delaying tactic and collection is in jeopardy, it may continue collection actions during the OIC procedure.

A Sumner man who earned $2.1 million from the U.S. Postal Service installing and maintaining mailboxes was sentenced last week in U.S. District Court in Tacoma to a year in jail for not paying taxes on that income.

Guy V. Flake had contracted with the Postal Service from 1998 through 2000.

Federal prosecutors said that they conservatively estimated that Flake underpaid $154,433 in taxes.

Prosecutors accused him of grossly underreporting the amount of money he received from the Postal Service when he filed his taxes with the IRS. He apparently failed to file taxes at all in 1998 and was late in 1999.

The extra cash Flake kept allowed him to pay for a “comfortable lifestyle,” including the purchase of homes in Tennessee and Utah, as well as a house in Lake Tapps, said Assistant U.S. Attorney Janet Freeman, who investigated and prosecuted the case.

Flake pleaded guilty to income tax evasion in September, according to court records. He was indicted in May.

At Flake’s sentencing Friday, U.S. District Judge Franklin Burgess also ordered the man to immediately cut a check for his back taxes.