TAX FILING

What's the proposal in Congress to regulate tax preparers?

A bill has been introduced in Congress that would establish uniform standards for tax preparers and hold incompetent preparers legally responsible.

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What's the proposal in Congress to regulate tax preparers?

The covid-19 pandemic brought with it financial hardship for millions of Americans and the federal government acted to alleviate that suffering. Americans were given access to unprecedented amounts of money through covid-19 relief programs in addition to stimulus funds sent out by the Internal Revenue Service.

The only catch was that you had to file a tax return or provide information to the IRS to receive a stimulus check, prompting many Americans to do so for the first time. Filing taxes can be a daunting task, collecting all the paperwork and checking all the boxes, so many Americans turned to tax preparers. Little did they know that not all tax preparers are actually qualified to do the job, nor are they required to be.

Congressional proposal to regulate tax preparers

A bipartisan pair of US Representatives Jimmy Panetta and Tom Rice introduced legislation that would give the IRS the ability to hold tax preparers accountable. The Taxpayer Protection and Preparer Proficiency Act would establish minimum competency standards that would reduce the risk for families from shoddy tax preparers.

There are currently no minimum federal competency standards for tax preparers. The bill would require tax preparers to show “competency in preparing returns, claims for refund, and associated documents.” Additionally, it would be mandatory for professionals keep their skills up to date by completing continuing education requirements.

“Since the federal government dictates our obligation to file taxes, we ought to allow the IRS to ensure that those who taxpayers turn to for assistance are well qualified,” Rice said.

The IRS would have the authority to punish incompetence

“Anybody who pays for their taxes to be prepared deserves to know that their tax preparers are professional, proficient, and principled and, if not, will be held accountable by the IRS,” Panetta noted announcing the bill. “Mistakes by incompetent tax preparers have led to many taxpayers getting audited or penalized through no fault of their own.”

Tax fraud is a serious crime and if discovered the IRS can prosecute tax preparers, however the agency is prohibited from prosecuting professionals for incompetence under current precedent. The proposal would change this and give the IRS the authority to revoke a preparers taxpayer identification number.

This would give the IRS back its regulatory powers the agency give itself in 2011, but now put them on solid legal ground. In 2013 a court struck down the agency’s attempt to impose many of the same reforms the proposal is calling for when a group of tax preparers sued.

Tax preparer associations welcome the changes

“The rules governing tax returns are complex, and a robust knowledge of the law is required. Additionally, the information required to file a return accurately is highly sensitive.” said Scott Artman, Executive Director of the National Association of Tax Professionals.

“This legislation will contribute greatly to the overall professionalism of the tax preparation industry and will go a long way toward protecting taxpayers from unqualified and unscrupulous preparers,” David W. Tolleth, President of the National Association of Enrolled Agents (NAEA) said. “We look forward to its enactment.”

The NAEA estimates that around 460,000 tax preparers don’t have credentials and may not meet the basic competency standards.