Reporting from Washington — The Internal Revenue Service for the first time will require the nation's roughly 1 million tax preparers to register with the federal government, with a large percentage of them having to pass competency tests and stay up to date on tax laws by taking 15 hours of classes a year.
The rules, announced Monday, come after a six-month study by the IRS that found a need for greater protection for the estimated 87 million people -- about 80% of all filers -- who hire a preparer or use tax preparation software to file their taxes.
California is one of the few states that already requires tax preparers to register and take continuing-education courses. In fact, California requires 20 hours of classes each year.
The new federal laws might eliminate the need for state oversight, said Walter Thomas, chairman of the California Tax Education Council, which registers tax preparers. He supports the federal requirements and said they should have been issued "eons ago."
"The tax law is very complicated, and of course people are getting a lot of unscrupulous tax preparers out on the street and there's no way of tracking who these people are," said Thomas, a tax preparer from Hayward.
The federal guidelines affect all people who prepare returns for a fee. They won't take effect for the current tax season and will be phased in over three years. The competency exam and continuing-education guidelines do not apply to attorneys, certified public accountants or so-called IRS enrolled agents, who already are subject to those requirements through state or federal licensing agencies.
The IRS estimates that there are 900,000 to 1.2 million tax preparers nationwide, with a "large share" of those not falling under any state or federal oversight.
Those include employees of large tax preparation firms H&R Block and Jackson Hewitt, who will be subject to the new regulations, as well as people who run tax businesses from kiosks at shopping malls or from their homes.
The moves "represent a monumental shift" in how the agency oversees people who charge money to prepare tax returns, IRS Commissioner Doug Shulman said.
"As tax season begins, most Americans will turn to tax return preparers to help with one of their biggest financial transactions of the year," he said. "Our proposals will help ensure taxpayers receive competent, ethical service from qualified professionals and strengthen the integrity of the nation's tax system."
The IRS will require anyone who charges a fee to prepare a federal tax return to register with the agency and obtain a special "preparer tax identification number" every three years.
Preparers who are not attorneys, CPAs or enrolled agents will have to take a competency test to be eligible to register. Registered tax preparers would have to complete 15 hours of continuing education each year -- 10 hours on federal tax law, two hours on ethics and three hours on tax law updates.
The IRS will require tax preparers to meet the ethical standards already required of enrolled agents. The IRS also will establish a task force to study whether there should be industry standards for tax preparation software.
The agency said it would send letters this week to about 10,000 paid preparers who file a large amount of the types of returns that have a high rate of errors -- such as those claiming the earned income tax credit -- reminding them to be careful.
The IRS plans to send agents to thousands of preparers to drive home the point.
H&R Block said it supported the new regulations. The company said its training standards for tax preparers exceed the IRS requirements.
And the National Assn. of Tax Professionals, which represents about 20,000 tax preparers, also backed the IRS moves.
"This has been a long time coming, and we're pretty pleased with the reasoned and rational approach to this on the part of the IRS," said Paul Cinquemani, a CPA and the group's director of member services and government relations. "The whole idea of a competency exam just raises the bar. That's a great idea."