The Internal Revenue Service said it will regulate the tax-preparation industry for the first time, requiring companies including H&R Block Inc. and Jackson Hewitt Tax Service Inc. to register and pay a fee.

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

WASHINGTON - The Internal Revenue Service plans to start regulating paid tax preparers, requiring them to register with the government, pass competency tests and adhere to ethical standards.

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.

Executive Summary
In fiscal year 2005, Federal receipts totaled over $2.2 trillion. More than 95 percent of net receipts were collected by the Internal Revenue Service (IRS) through its administration of the income, transfer and excise tax provisions of the Internal Revenue Code. The vast majority of these receipts is collected through our voluntary compliance system, under which taxpayers report and pay their taxes with no direct enforcement and minimal interaction with the government. The overall compliance rate achieved under this system is quite high. In 2001, the compliance rate was over 86 percent, after including late payments and recoveries from IRS enforcement activities. Nevertheless, an unacceptably large amount of the tax that should be paid every year is not, requiring compliant taxpayers to make up for the shortfall and giving rise to the “tax gap.” Click Here.

Now that this year’s tax-filing deadline has passed, if you’re like most people, you probably want to stuff those papers in a box and put the whole business out of mind. But it’s never too early to start your tax-minimizing strategy for 2007. Click Here.

LOS ANGELES (MarketWatch) — In November alone the IRS issued more than 15 notices, revenue procedures and revenue rulings. Do you have any idea how many of these changes affect you and your finances? Click Here.