Senators Unveil Bill to Regulate Tax Preparers

[kcjenkins]

Washington, D.C. (January 8, 2015)
By Michael Cohn

 

Two Democrats on the Senate Finance Committee have introduced legislation to regulate paid tax preparers in response to the federal court decision that found the Internal Revenue Service had exceeded its statutory authority in regulating preparers.

Senate Finance Committee ranking member Ron Wyden, D-Ore., and Senator Ben Cardin, D-Md., unveiled legislation Thursday that provides the Treasury Department and the IRS explicit authority to regulate paid tax return preparers. Wyden chaired the committee until control of the Senate changed after last November’s elections.

 

With nearly half of all Americans turning to others to prepare their tax filings each year, the bill would require preparers to demonstrate competency in preparing tax returns, claims for refunds and related documents.

 

“It’s bad enough that taxpayers have to navigate their way through an overly complex tax code, but worse that many also unknowingly rely on fraudulent or incompetent tax preparers to help with their returns,” Wyden said in a statement. “This bill helps protect hard working taxpayers by ensuring that tax preparers are held to clear and enforceable standards.”

 

The legislation was introduced in response to the decision in the case of Loving v. IRS. Judge James E. Boasberg of the U.S. District Court for the District of Columbia ruled in 2013 that the IRS had exceeded its statutory authority in imposing mandatory testing and continuing education of independent tax preparers as part of its Registered Tax Return Preparer Preparer regime. A federal appeals court upheld the decision last year. In response, the IRS has introduced a voluntary program for continuing education and testing of preparers known as the Annual Filing Season program.

 

The legislation introduced by Wyden and Cardin aims to give the IRS the statutory authority that the courts said it lacked. The IRS had argued that it had the authority under an 1884 law that was originally intended to apply to federal regulation of compensation claims for dead horses killed during the Civil War, but the judges disagreed. The court decision invalidated the IRS’s RTRP program, which aimed to regulate unenrolled preparers who are not already regulated under the Treasury’s Circular 230 rules. Those rules still apply to tax practitioners such as CPAs, Enrolled Agents and attorneys who are authorized to represent clients before the IRS.

 

“Our tax code is complicated,” said Cardin. “To protect taxpayers from incompetent or unscrupulous preparers, the IRS needs adequate tools to ensure that preparers are qualified and held accountable. I’m pleased to join in support of this legislation, which restores meaningful and much-needed standards and oversight in the paid preparer industry.”

[mcb39]

I read that this morning.  I was surprised that it didn't appear on the board until now.  I am reserving comment as I have already jumped through all the hoops and landed on my head at least once.

[cred65]

When are they going to regulate the IRS?

[BulldogTom]

I wonder- if this passes and becomes law, will the states lose their authority to regulate paid preparers?

 

Tom

Newark, CA

[kcjenkins]

Some good comments on the article, both pro and con.  

 

 

 

The proposer of the Bill has stated "It's bad enough that taxpayers have to navigate their way through an overly complex tax code".

And therein lies the solution. Fix the code and make it simpler. And I say that as an accountant who does tax returns for a living.

 

I really must agree with all those that say this is long overdue. We all understand as paid preparers that the client is still responsible for additional tax due the IRS if we make a mistake. At what point is it OK for anyone to think a computer can handle the complex levels of tax law and preparers only need to enter data and not be held accountable for their work. We hold our plumbers accountable for fixing our plumbing but we do not hold tax professionals accountable for determining our tax liability. There are a lot of "tax pros" out there lining their pockets who have no idea how to prepare a tax return and they are the ones that hurt those of us who do our continuing education and try to stay current on the ever changing laws.

 

As a college grad in Accounting (Elon University) and experienced tax preparer since 1982, and member of a professional organization that has continuing education requirements that I support, I can tell you that letting the IRS be the one to regulate tax preparers is like BEGGING the fox to guard the henhouse for you. The tax preparer needs to be an advocate for the taxpayer client. That is not possible when the tax preparer must answer to (and pay fees to for the privilege!) the agency that is to tax the taxpayer. I also do not believe that for a minor few defrauders, cheaters and tax preparers of bad character that ALL the other law-abiding tax preparers AND the professional education sponsor/providers must be put under a heavy yoke of harassment of fees, paperwork, reporting and nit-picking rules.

 

If you think the tax laws are complicated, wait till the advocacy and compliance industry - the tax preparation occupation - becomes regulated! It may then be impossible or at least very difficult for the tax preparers and taxpayers to make sure they comply with the law. Think about all the implications of that - more fees, penalties, running afoul of the law, jail...

No, the IRS needs to be STOPPED right NOW before this nonsense goes any further.

 

 

Another democrat attempt to control all of us further. The number of returns being prepared by professionals is declining so preparers who are not exempt must be driven from the industry in order to protect those exempt professions and their market share. Another redistribution of wealth. According to the IRS the vast majority of preparers are doing a good job but the government solution to a few bad actors is to upheave the entire industry, satisfy cronies, and expand their power. It's always about protecting the citizen by taking away something. Everyone knows that all lawyers, CPAs and enrolled agents are competent and honest tax professionals and that's why they are exempted. Except for the ones who go to jail. All the rest of us 400,000 preparers shall be considered incompetent and unscrupulous and should be "policed". No one should be allowed to work unless the government gives permission through a fee based licensing system. This is about control, corruption and protectionism.                                                                                                  Posted by: hisexcellency

 

 

I agree with hisexcellency...this is all about controlling the private sector. Look at the complexity of the tax code, ACA, "No Child Left Behind", etc., the federal government cannot do anything without creating a bigger mess than we had when they started. Why give them carte blanche on this? As others have said, there is supposed to be a preparer ID on the return or else it is self-prepared, if it is fraudulent, track the bad guy down. Whatever happened to buyer beware? Why aren't the consumers responsible for their own returns and who they pay to prepare it? The feds stepped in and said, oh poor people, you are too stupid to do anything for yourself...you must let the government make your decisions for you. Sound familiar?

 

No matter what kind of rules and regulations Congress introduce, there will be always a problem. Dishonest tax preparers are the problem. Huge penalty should be imposed to them and put more muscles to complying to prevent repetition of fraudulent returns.

 

And the one I tend to agree with most:

 

 

I am a "rule-follower" generally, so I got the RTRP designation and now the Annual Filing Season program, but I really believe that this idea of giving the IRS an open checkbook for "regulating tax preparers" is nonsense. If they really want such onerous regulations, let the IRS submit bills for specific licensing schemes to Congress and convince them (and the public) that we really need them. The IRS does not have the best track record for ethical behavior or unbiased professionalism, so I am hesitant to give them any more power than they already have. Further, occupational qualifying tests are usually simply a means of generating income for the agency and do not protect the public. As one commenter said, "Even a criminal can pass a test." I would like to see some real and unvarnished statistics about the level of preparer malfeasance. So far, it seems to be highly publicized by the IRS but I have never seen any real evidence that this is a big enough problem to warrant spending tens of millions of dollars of public money. And... just because we have all seen some improperly prepared returns or returns without preparer attribution, does not mean we should just open the public checkbook to create one more sub-bureaucracy within a agency that already has proven itself to be suspect.

[FreedomTaxed]

More lunacy. If the tax code is that difficult, then fix it, much like others have said. And as importantly, if every citizen can prepare their own taxes anyway, without being certified to do so, then it logically stands that you can do that same work for pay under the same lack of certification. After all, the taxpayer's dependency creates a natural due diligence. In fact, the due diligence is factual... the IRS still holds the taxpayer liable for the outcome of the filing, regardless of the position of the preparer. So controls on the preparer naturally exist.

 

The concept of limited government is being lost in all of this. Shame on us if we let this happen.

[kcjenkins]

True.  Note also that it does not apply to CPAs, EAs, or Attorneys, although we all know that some of them are also crooks.  The fact is, they already have enough power to regulate, just by controlling the EFINS and PTINS.  

[Catherine]

They would get FAR better results if they used the funds it would take to implement these "registration" programs and used it for two purposes (both already in their purview):  

 

1.  To fund public education ads (etc) telling folks how to choose a GOOD, qualified preparer, and

 

2.  Strong acts against fraudulent preparers (they have EFIN's and PTIN's already; start by revoking those), and especially paying attention to larger firms that specialize in fraud-rich areas of tax.  

 

Heck, just refusing to send ANY refunds until they have matching W-2 info would cut out huge amounts of fraud.  Any non-matches then go straight to the "investigate these preparers" list.  

 

Frankly, the onsie-twosie preparer who uses TurboTax (or similar) to do "self-prepared" returns just can't do enough business to make a big splash in the area of tax fraud.  And an education campaign will put most of those folks out of business faster than trying to track them down individually.

[kcjenkins]

IRS Made Errors on 24% of EITC Payments
Washington, D.C. (January 7, 2015)
By Michael Cohn
Even though the Internal Revenue Service has reported an overall decline in the improper payment rate for the Earned Income Tax Credit since fiscal year 2003, the amount of payments made in error has increased from $10.5 billion in fiscal year 2003 to $14.5 billion in fiscal year 2013, according to a new government report.

 

The IRS’s fiscal year 2013 EITC improper payment report to the Treasury Inspector General for Tax Administration estimates that in fiscal year 2013, EITC claims totaled approximately $60 billion, while 24 percent of the EITC payments were paid in error, according to a report released Wednesday by TIGTA.

An earlier TIGTA report last month had reported on the IRS’s high error rate and improper payment amounts for the EITC, along with the Additional Child Tax Credit (see IRS Urged to Crack Down on Improper EITC and ACTC Payments). Using IRS data, TIGTA estimated that the potential ACTC improper payment rate for fiscal year 2013 was between 25.2 percent and 30.5 percent, with potential ACTC improper payments totaling between $5.9 billion and $7.1 billion.

 

The new report focused on the IRS’s compliance with Executive Order 13520, Reducing Improper Payments and Eliminating Waste in Federal Programs, which requires TIGTA to assess the IRS’s compliance with the order on an annual basis. Executive Order 13520 aimed to increase federal agencies’ accountability for reducing improper payments while continuing to ensure that their programs serve and provide access to their intended beneficiaries. In the new report, TIGTA acknowledged that the IRS has taken steps to ensure access and participation by eligible individuals. The IRS estimates that the participation rate for individuals who are eligible to receive the EITC was nearly 80 percent for tax year 2010.

 

However, TIGTA pointed out that the IRS is not in compliance with certain requirements of Executive Order 13520 for fiscal year 2013. For example, the IRS has not established annual improper payment reduction targets as required.

 

Nonetheless, the IRS is making some progress related to its inability to comply with this requirement, TIGTA acknowledged. For instance, the IRS has received approval from the Office of Management and Budget to establish and report supplemental measures in lieu of annual reduction targets.

 

While the IRS is currently not in compliance with the quarterly reporting requirement for high-dollar improper EITC payments (that is, payments totaling more than $5,000) for fiscal year 2013, according to TIGTA, new revisions to the quarterly reporting requirements make it unlikely that the IRS would be required to report any quarterly high-dollar payments for fiscal years 2014 and beyond.

 

TIGTA made no recommendations in the report. In response to the report, IRS CFO Robin Canady wrote, “The Earned Income Tax Credit (EITC) is the Treasury Department's only high risk program and poses numerous challenges with respect to improper payments and reporting.”

 

Canady also reiterated some of the IRS’s objections to the report last month on the EITC and the ACTC: “As we reported in our response to your performance audit on the Additional Child Tax Credit (ACTC), the IRS disagrees with your assertion that our risk assessments do not accurately reflect the risk associated with the ACTC payments and TIGTA's potential outcome measure estimates.”

 

A provision in a report attached to the $1.1 trillion spending bill passed by Congress last month aims to stem the tide of improper payments of refundable tax credits such as the EITC by requiring taxpayers who use consumer tax prep software to self-prepare their tax returns to undergo the same kinds of questions that professional tax preparers are required to answer for their clients’ returns (see Congress Requires Self-Preparers and Consumer Tax Software to Check for Improper Tax Credits).