UPDATE 3-U.S. IRS mulls oversight of tax-return preparers

* US IRS to make recommendation on tax prep regulation

* IRS says could boost enforcement against misconduct

* Move could benefit established players like H&R Block
(Adds analyst comment on industry impact)

By Kim Dixon

WASHINGTON, June 4 (Reuters) - The U.S. tax regulator said
on Thursday that the agency is exploring the regulation of the
community of paid tax preparers -- a step that could include
licensing and registration.

The Internal Revenue Service will recommend ideas to
Treasury Secretary Timothy Geithner to "better leverage the tax
return preparer community to increase taxpayer compliance and
ensure high ethical standards of conduct for paid tax
preparers," IRS Commissioner Douglas Shulman said.

Potential recommendations, to be made by the end of 2009,
also include beefing up enforcement against misconduct by return
preparers.

H&R Block, the biggest nationwide tax company, would likely
benefit under any boost in oversight, a Wall Street analyst
said.

"This is something that they've been hoping for for a
while," said Scott Schneeberger, an analyst at Oppenheimer.

He said that because Block is the biggest, it is held to a
higher standard and is already closely monitored.

The regulation would be hardest on the large swath of tax
prep companies "that are smaller and can compete a little bit
more aggressively."

Speaking before a U.S. House of Representatives Ways and
Means subcommittee hearing, Shulman said: "Clearly with
preparers and software providers being engaged with 80 percent
of Americans plus ... they need to be part of the overall tax
administration system."

The preparer community is diverse and includes some entities
that do operate under federal guidelines, but only if they have
to come before the IRS. These include so-called enrolled agents,
certified public accountants and lawyers.

However, the IRS said there is another group of preparers,
including some software vendors, that may follow no guidelines.

Proponents of greater oversight contend that the absence of
a national standard gives virtually anyone the ability to open
up a business to prepare tax returns.

"We have to do something because in many communities ... you
have these fly-by-night people that put up a sign and at the end
of the season, they can't be located," said U.S. Rep. John
Lewis, the Democratic chairman of the oversight subcommittee.

Democratic Representative Xavier Becerra said he plans to
reintroduce legislation that would impose new standards upon
preparers and asked Shulman whether he would consider going
beyond registration to ensure some level of competency.

"For me, everything is on the table," Shulman said.
(Reporting by Kim Dixon, editing by Gerald E. McCormick and
Matthew Lewis)