New IRS Rules Mean Regulation, Testing of Individual Tax Preparers

Next year, the Internal Revenue Service will require preparers of individual tax returns to register with the government and pass a test to prove their competence. Currently, only three states – California, Oregon and Maryland – regulate all paid tax preparers.

The news is significant because, according to the IRA, more than 60 percent of Americans pay someone to do their taxes. Most of the 900,000 to 1.2 million tax preparers are not regulated, and mistakes by preparers can cost you.

VIDEO: Mellody Hobson offers advice on finding a credible tax preparer.
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In 2008, auditors from the Treasury's inspector general for tax administration posed as taxpayers and went to tax preparation companies. They found that only 60 percent of the returns were correct for itemized deductions. Remember, the taxpayer is responsible for making good on many mistakes.

Tips to Protect Yourself

Mellody Hobson, president of Ariel Investments and "GMA's" financial contributor, visited "Good Morning America" to talk about the new regulations. She offered the following tips:

Check your tax preparer's qualifications. Ask if the preparer is licensed. Certified public accountants, attorneys, enrolled agents and actuaries who are licensed must adhere to strict rules and regulations, and face penalties if they don't. Only people who hold licenses can represent you before the IRS if a problem arises.

Check your preparer's track record. To find out if other people have had problems with a preparer, you can check with the Better Business Bureau. You can check with your state's board of accountancy to check on CPAs, the state's bar association for tax attorneys and with the IRS' Office of Professional Responsibility for enrolled agents.

You can spot a good tax preparer by the level of detail that he or she pays to your case. The preparer should spend time with you to get your complete financial picture, and should ask for receipts, deductions and other aspects of your return. If preparers aren't doing that, they're not doing their job.

Avoid Refund Anticipation Loans, Hobson Says

Make sure you know who will prepare your return. Many firms will have a seasoned preparer meet with you but will have a junior associate do the actual preparation of your return. Key information can be lost that way. Some firms even farm out the work to foreign countries, which may not have the same privacy laws, and your personal information could be compromised.

Be sure that you can contact the preparer after the tax season, which is usually when you will hear from the IRS if there are any problems. Large firms such as H&R Block offer that assurance, as do accountants and attorneys with established practices.

Understand that tax refund anticipation loans are a bad idea. Any tax preparer who pushes you toward a refund loan is not acting in your best interest, because the loans are usually issued for a fee that is astronomical.

CLICK HERE to get some extra tax preparation tips.

According to the Government Accountability Office, 8.7 million refund anticipation loans were issued in 2007, at a cost to taxpayers of $900 million in fees. That's a lot of money -- and you're not even getting your refund back that much faster. A tax refund anticipation loan will come through in about two days, but at a big cost, but if you submit your return electronically and set up direct deposit, you'll get it in about eight to 15 days -- for free.

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