Insurance agents and financial service professionals that provide paid tax preparation services to their clients may be required to be licensed by the Internal Revenue Service.

Currently, only tax preparers who have to appear before the IRS must be licensed.

The new rules could be introduced by the end of the year and could be part of regulatory or legislative changes in 2010.

As many life agents and other financial service professionals have expanded their practices, many have added tax preparation services, often using the same software that consumers use.

If new rules were adopted, those professionals would have to determine if the additional licensing requirement is prudent.

Doug Shulman

The IRS is hoping the new rules will reduce fraud and improve tax compliance, according to testimony from Doug Shulman, the IRS commissioner, who spoke to the House Ways and Means Subcommittee on Oversight June 4.

Paid tax preparers, including chains like Liberty Tax Service, H&R Block Inc. and Jackson Hewitt Tax Service Inc. and computer programs such as Turbo Tax are used by about 80% of taxpayers.

“Tax return preparers help Americans with one of their biggest financial transactions each year. We must ensure that all preparers are ethical, provide good service and are qualified,” Shulman said in a statement. “At the end the day, tax preparers and the associated industry must be part of our overall game plan to strengthen the integrity of the tax system.”

The IRS is planning to hold open meetings in Washington, D.C., and other cities to discuss possible changes and their ramifications.

“We plan to have a transparent and open dialogue about the issues,” Shulman said. “At this early and critical stage of the process, we need to hear from the broadest possible range of stakeholders.”