It might be that allowing the IRS to regulate tax return preparers more stringently would be wise as a policy matter. But that is a decision for Congress and the President to make if they wish by enacting new legislation. (Opinion, Sabina Loving, et al., v. Internal Revenue Service, et al., (No. 1:12-cv-00385))
With that, the U.S. District Court of Appeals affirmed a 2013 ruling that Congress never gave the Internal Revenue Service (IRS) the power to license tax preparers and the IRS cannot give itself that authority. The court made it clear that if Congress wanted to give that authority to IRS, it could. With that, Congress made noise about doing so in September 2015 and then again in December 2015. That trend continued this week when Senate Republicans objected to a proposal that would have established minimum standards for paid tax return preparers.
The proposal, a markup of the September 2015 bill would have provided “the Treasury Department and the IRS with the authority to regulate all aspects of Federal tax practice, including paid tax return preparers” making the decision in Loving moot. The proposal was submitted for markup in the Senate Finance Committee on Wednesday as part of an effort to protect taxpayers from an increased risk of identity theft and tax fraud.
(You can read the original bill for markup here, downloads as a pdf.)
Just before the markup, Senate Finance Committee Ranking Member Ron Wyden (D-OR) sent a letter to Committee majority members asking for their support, saying:
Congress needs to do a better job of protecting honest taxpayers from fraud. That includes ensuring that paid tax return preparers are held to minimum standards of competency as they have access to taxpayers’ most private information, including banking accounts and Social Security numbers. Having just passed the tax filing deadline, taxpayers should be able to go on with their lives without also having to worry about being scammed.
Despite Sen. Wyden’s plea, the final version to come out of Committee specifically removed the proposal as noted in the Description of the Chairman’s Second Modification to the Chairman’s Mark of a Bill to Prevent Identity Theft and Tax Refund Fraud (downloads as a pdf).
Other deletions from the original bill included:
- the extension of authority to require a truncated Social Security Number on a federal form W-2;
- the modification of due dates for filing certain information returns
- a safe harbor for de minimis errors on information returns, payee statements, and withholding; and
- clarification of the use of credentials by Enrolled Agents.
Additions to the original bill included:
- a requirement that the IRS report on the status of the Refund Fraud Information Sharing and Assessment Center (“ISAC”);
- a requirement that the GAO prepare various reports on identity theft and tax refund fraud; and
- a sense of the Senate expressing support for strengthened penalties and enforcement for impersonating an IRS official or agent.
Just before the markup, Senate Finance Committee Chairman Orrin Hatch (R-UT) said that the bill “represents a significant step forward in the effort to address and hopefully prevent stolen identity refund fraud.”
Sen. Hatch noted that he would be amenable to continue working on the licensing of paid tax preparers but expressed concern over the scope of potential authority. In fact, Republicans were generally wary of the amount of authority the proposal would give to the government. Interestingly, that’s exactly one of the central arguments made by the plaintiffs and those participating in amicus briefs filed in Loving. It is also the same concern raised by the American Institute of Certified Public Accountants (AICPA) who expressed “serious concerns and misgivings about granting the IRS unlimited authority to regulate tax return preparers” last year.
Currently, tax preparers are not licensed and regulated by federal statute. There is, however, some federal regulation under Title 31 for certain paid tax return preparers such as attorneys, certified public accountants (“CPAs”), enrolled agents and enrolled retirement plan agents. Proponents of additional licensing have touted the benefits of expanding the IRS’ authority to license those not captured under Title 31, including Nina E. Olson, the National Taxpayer Advocate, who has been urging Congress to move forward on such a program since 2002.