New IRS Rules Mean Regulation, Testing of Individual Tax Preparers

Jan. 13, 2010— -- 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.

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.

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.