Have you ever noticed a business in the area offering free tax return preparation in exchange for a purchase of a good or service? Maybe you think, “What a great idea: use my refund money to purchase [item/service]!” Although this seems like a great way to grasp an early benefit from a potential refund, there are numerous consequences that may follow. Alternatively, while you were shopping at a store, you noticed a company that was willing to sit with you for a few minutes and file your tax return for a small fee. Maybe that company was going to offer to front your refund money for an additional fee, or maybe you simply decided to use this company as a quick and relatively painless way to file your taxes. You’re not alone.
Many of these return preparers are considered non-registered return preparers.
A non-registered return preparer is someone who is not licensed, may have little to no training or education in tax law, and has little liability should this individual incorrectly prepare a return for a taxpayer. This does not include attorneys, CPAs, Enrolled Agents, and many other special licensed individuals who are considered “Registered” with the IRS. Registered return preparers have yearly continuing education requirements and must strive to perform accurate work with precise and up-to-date knowledge of the tax system in America. Non-registered return preparers, although may have the same statutory liabilities set for inaccurate and ignorant returns, do not have a governing body to set an overarching standard of care. The National Taxpayer Advocate, in its 2013 Report to Congress, determined that around 75% of all prepared returns are actually prepared by non-registered return preparers.
In 2011, the Treasury Department created some regulations in an attempt to force these non-registered return preparers to register with the IRS, pass an exam, and be required to follow yearly continuing education. Due to the lack of power the Treasury had, these regulations were held invalid in Loving v. IRS in both the district and circuit courts. Today, there is nothing the IRS or Treasury can do to force non-registered return preparers to make sure they keep up with the constant change in tax laws. The IRS has enacted a voluntary registration program, but unless Congress enhances the Treasury’s authority to create mandatory regulations, there is nothing they can do.
Why does this matter? You, as the taxpayer, will be the main individual responsible for the inaccurate return. Tax return preparers have some statutory penalties, but they could be significantly less than your potential penalties and fees for the return. Taxpayers should be asking their preparers whether or not they are registered with the IRS, and should only use a preparer they trust will perform quality work or is subject to a higher governing body with harsher penalties.