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Should Congress license paid tax preparers?

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tax forms
Tax forms are familiar paperwork for almost everyone at this time of year.
MPR Photo/Elizabeth Stawicki

Consider what you turn over to your tax preparer:  your social security number; your bank account numbers; your salary; your mortgage; number of children.  Then consider that anyone can start up a tax preparation business without training or regulation.    

"A lot of tax preparers use tax preparation software like a videogame and they just move the numbers around and change things to watch and see how large the refund can get," says Christina Cook who heads Legal Aid's tax division.

She says some non-regulated tax preparers inflate refund amounts to attract business.  When the IRS audits their clients, they skip town and those clients are left without recourse.  

Some tax preparers are licensed because they're also public accountants or attorneys.  The IRS also designates tax preparers who pass a rigorous exam and take continuing education on the latest tax laws.  The IRS calls these enrolled preparers.  All others are called unenrolled preparers and the state does not regulate them.

U.S. Rep. Jim Ramstad, R-Minn., says he'll push for legislation this session that would regulate ALL paid tax preparers.

"Too many taxpayers don't have an effective way to distinguish between legitimate qualified tax preparers from those charlatans who are either unqualified or intent to commit tax fraud," he says.

Bonnie Noghabaie
Bonnie Noghabaie of Bonn's Tax Service in St. Paul, says a state license would differentiate her from shoddy preparers who are untrained, skip town, and leave their clients without recourse.
MPR Photo/Elizabeth Stawicki

Bonnie Noghabaie owns Bonn's Tax Service. Her office is at the top of the stairs in a building on St. Paul's east side.  She has prepared taxes for 21 years and is not licensed.  As non-enrolled agent, she welcomes a state license because it would differentiate her from unethical preparers who don't follow the rules.

"There's never a bad idea when there are controls on things that benefit the public," says Noghabaie. "Look at the realtors.  You have to take a test, you have to take 90 hours of class, you have to do this, you have to do that.  What's the difference?" 

Rep. Ron Abrams, R-Minnetonka, worries that licensing tax preparers would put some non-enrolled agents out of business because they couldn't afford a license fee, which could run up to several hundred dollars.  As a result, he says there would be fewer tax preparers to serve low-income people. Abrams chaired the House Taxes Committee for six years.   "We don't want to be fencing people out based upon the level of education etc.," says Abrams. "We would like to get a handle on those who may not have the skill set to do simple tax returns."

Two states currently require some form of licensing for paid tax preparers: Oregon and California. Oregon has licensed paid tax preparers for more than 30 years. It began in response to consumer complaints and from non-enrolled preparers who wanted credentials.      Ron Bersin is Executive Director of the Oregon Board of Tax Practitioners.  He balks at the idea that licensing would put tax preparers who cater to low-income clients out of work.  

"If you think it's not going to help your poorer citizens, it actually does.  Remember they want to pay the correct amount of tax -- too much or too little and they're probably the people that have the least amount of funds and understand the tax system," says Bersin.

The Oregon program also sanctions preparers who submit incorrect or fraudulent returns.  They have to pay restitution to their clients and can lose their licenses.

Minnesota is unique.   If you volunteer to prepare taxes for free, the IRS requires you to undergo training and pass a certification test for even basic returns.  But if you charge a fee for preparing taxes, you need no certification of any kind.