How much do you trust the fine folks at H&R Block or Jackson Hewitt to properly prepare your taxes? Soon you'll be able to trust them a lot more. According to a Washington Post article published today, the Internal Revenue Service (IRS) "plans to test, register and screen people who get paid to prepare tax returns," as the agency seeks to "crack down on preparers who do shoddy or fraudulent work." The IRS will phase in the changes during the 2011 tax season.

In an interview with the Post, IRS Commissioner Douglas Shulman acknowledged that, while "most states [require] a license to cut someone's hair, most tax-return prepares don't have to meet any standards when they sit down and prepare a federal tax return for an American taxpayer." There is good reason to register and train tax preparers, as some 900,000 to 1.2 million persons prepare tax returns for a fee every year, and recent studies by the Government Accountability Office (GAO) and others found that the group often made serious mistakes while preparing returns.

Starting next year, the IRS will require paid preparers to register with the agency. Sometime afterwards the IRS will being requiring passage of a competency test and enrollment in continuing professional education. According to the Post, the new standards "will exempt certified public accountants [CPAs], lawyers, and tax practitioners...who are...already subject to professional or government requirements." However, the IRS has not ruled out regulating those groups in the future.

In a report released Monday in conjunction with the announcement, the IRS also raised concerns about the use of tax preparation software and the pushing of tax return loans, which consumers take out from tax preparer chains against anticipated refunds. The agency plans to establish a task force on the former to discuss possible industry standards, and to create a working group on the latter to look at the refund industry.

Despite a lengthy, publically open decision-making process, questions over the tax preparer issue remain. In the Post article, a representative of H&R Block pointed out that the IRS is not planning to impose the same rules on unpaid tax preparers. It seems fair to expect that group to work under the same scrutiny as paid tax preparers. In addition, it wasn't clear to the IRS prior to their creation of these regulations that regulated professionals such as CPAs necessarily perform better than their currently unregulated counterparts. I would argue, though, that some form of regulation should certainly help curb the rampant errors of unregulated tax preparers.

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