With tax season just around the corner, Congress is taking another stab at legislation to license tax preparers. Representatives Diane Black (R-TN) and Pat Meehan (R-PA) have introduced H.R. 4141, the Tax Return Preparer Competency Act (downloads as a pdf).
The introduction of the bill follows years of efforts by the Internal Revenue Service (IRS) to license tax return preparers, initially without Congressional approval. Those efforts were shot down in Loving v. Commissioner when a federal judge ruled that IRS didn’t have that right. Loving was filed in 2012 by three independent tax preparers: Sabina Loving, John Gambino, and Elmer Kilian. The three accused the IRS, among other things, of lacking the authority to license tax preparers. It turns out, the court agreed. The IRS appealed but lost again at the appellate court level. The IRS eventually gave up on appeals and moved to a voluntary program instead. At the time, IRS Commissioner Koskinen referred to the program as “not the ideal solution” and noted that it would be easier if Congress simply stepped in and granted IRS the authority that the courts found lacking.
Under the proposed bill, tax return preparers would be required to pass a competency exam, attend annual continuing education classes (at least 15 hours per year) and submit to a background check. Preparer tax identification numbers (PTINs) would also be required (as they are currently).
The bill also addresses concerns about tax return preparers who are already credentialed. Tax attorneys, certified public accountants (CPAs), enrolled agents (EAs) would likely get something of a pass since the bill allows for exemptions, as appropriate, when credential requirements are comparable to the requirements in the bill.
Tax return preparers who comply with the licensing requirements as outlined in the bill would be listed in a public database (similar to the PTIN directory already in place).
Rep. Black said, about the bill:
As a result of our mammoth tax code, an estimated 80 million Americans turn to tax preparers to assist in filing their yearly returns. Today, however, there are no minimum standards to stipulate who can charge for these services. This lack of accountability puts Americans at unnecessary risk and contributes to rampant improper payments within the tax system. While Congress continues working towards a fairer, flatter, simpler tax code that will enable more Americans to complete their taxes on their own, we must also act now to rid out fraud and protect taxpayers from fly-by-night tax preparers who lack a basic background check and the requisite training to handle Americans’ most sensitive information.
Rep. Meehan offered:
A tax burden can dramatically affect a family’s take-home income each month, and Americans take the annual tax preparation process seriously. The complexity of the tax code means that many of these families will use the services of a tax preparer to help them ensure they pay only what they owe. When they do that, they turn over a vast amount of their families’ most personal data. They put their trust not only in the tax preparer’s competence – but in its honesty and integrity, as well. They deserve to know their information is safe. This bill is a prudent measure to weed out scam artists and help protect taxpayers from identity theft and fraud.
If all of this sounds familiar, you’re not wrong. In September, the Senate Finance Committee, led by Committee Chair Orrin Hatch (R-UT) and Ranking Committee Member Ron Wyden (D-OR), was tasked with marking up a bill that would, among other things “help root out the bad actors who pose as law-abiding return preparers” as a step towards protecting taxpayers from identity theft and fraud. The markup session was postponed and has not, to date, been rescheduled.
So what does this mean for taxpayers? Meehan, Black, and Koskinen believe that it means better service and more competent representation. Those of you who have followed my coverage of the original proposal to regulate tax preparers (as announced by former IRS Commissioner Doug Shulman) and subsequently, Loving, know that I’m not so sure. I’ve long believed that the attempts to regulate tax preparers have too many holes (your trademark attorney would be allowed to prepare tax returns without oversight but a long-time tax preparer would not), held the potential for increased prices to consumers, is somewhat duplicative (mechanisms already exist for dealing with unscrupulous preparers) and ultimately, could create an uptick in the black market of so-called “ghost preparers.” The bad guys are the bad guys: forced ethics courses won’t change that. Incompetent and lazy preparers are incompetent and lazy: forcing someone to sit through continuing education courses (likely while text messaging, trust me, I’ve been a speaker at these things) doesn’t make that person smarter or more conscientious. The reality is that smart, competent tax professionals do the right things already. But that doesn’t make for good press. So, instead, we add more rules.
IRS, of course, thinks differently. After years and years, it appears that Congress is creeping closer towards accommodating the agency’s wishes to grant authority for mandatory tax return preparer regulation. As before, we’ll keep you updated. Stay tuned.