Fly-by-night tax preparers

Although there are many unlicensed tax preparers who are competent, there are a lot of people with questionable abilities and ethics preparing returns. The IRS plans to implement a requirement that anyone who prepares more than 10 returns pass a test and register with the IRS.

This will provide a minimum level of confidence but even someone who has the ability to pass the CPA test or the EA test cannot be tested for honesty. As a CPA, I'm required to take courses in ethics on regular intervals. This may be of some benefit in resolving some grey areas, but even Al Capone could probably pass a test in ethics if he studied the right material--but that would not guarantee that he would behave in an ethical manner thereafter.

Here is a recent IRS comment:
The IRS has proposed a number of actions to increase oversight of federal tax return preparers, as outlined in the Return Preparer Review issued on Jan. 4.

The RFP lists a tentative introduction date for an on-line registration system of Sept. 1, 2010. Sept. 1, 2010, is the current target date for an on-line registration system. Final determination of an on-line registration system availability date will not be possible until multiple factors are considered including the evaluation of proposals submitted by vendors.

The IRS will maintain full oversight of the registration process and registered preparers.