Before a Person can Professionally Cut Hair, Paint Nails, or be a General Contractor, they’ll need a License. But when it comes to preparing a Tax Return, a Crucial Transaction between Taxpayers and Government with Accuracy Penalties, Audits, and Tax Bills, waiting if things go wrong, there are No Requisite Professional Standards at the Federal Level.
President Biden’s American Families Plan wants to Change that by giving the Internal Revenue Service (IRS) Authority to Regulate Paid Preparers at the Federal Level. “Tax returns prepared by certain types of preparers have high error rates. These preparers charge taxpayers large fees while exposing them to costly audits,” a White House Report said, calling on Lawmakers to Pass a Bill giving IRS Power to Oversee Preparers.
Many Tax Professionals undergo Training, and have Licenses and Accreditations to lose if they do something Wrong. Attorneys, Accountants, and enrolled Agents can All File Tax Returns. They all must Pass Professional Exams and follow varying continuing Education Courses. But there’s another swath of Unregulated Preparers who just get an Easy-to-Obtain “Preparer Tax Identification Number” before they can Submit Returns. Sometimes they quickly Set-Up Shop in Minority Neighborhoods and then Leave, Observers say. Just a handful of States, like New York and California, have their own Licensing Standards.
After years of Regulatory Efforts, Court Fights, and Stalled Legislation, more Preparer Oversight “is long overdue,” according to Rebecca Thompson, Director of Field Engagement and the Taxpayer Opportunity Network at Prosperity Now. As Low-Income Families try bouncing back from the Pandemic, more Generous Credits, like the Earned Income Tax Credit (ETIC) and the Child Tax Credit “are so desperately needed. The expanded credits also represent a prime opportunity for fraud, so it is critical we have appropriate guardrails in place.” Thompson has seen the Damage Firsthand when Unregulated, Untrained Preparers take a Person’s Cash and Leave them with a Return that’s riddled with Errors, Bogus Tax-Credit Claim, and a continuing Liability to Pay the IRS for their Preparers’ Mistakes.
The Rise of Tax Software made it easier for Anyone to Prepare Returns. Increased Funding over the years for Provisions like the EITC prompted more Low-Income Households to File Returns. If they couldn’t afford an Attorney or Accountant, they might turn to a “Fly-by-Night” Operation.
By 2011, the IRS put its own Rules into effect that Required Paid Tax Preparers to Register with the Federal Tax Agency, take Competency Exams, and stay Up-to-Date on the Tax Code, with 15 hours of Yearly Continuing Education. Those Regulations applied to around 600,000 to 700,000 Preparers. Several Preparers Sued, saying the IRS Lacked Authority, to come up with Regulations like these on its Own. A Washington D.C. Federal Judge sided with the Preparers. Members of the Washington D.C. Court of Appeals, including future Supreme Justice, Brett Kavanaugh, Upheld the Lower Court Decision in 2014. The IRS now has a Voluntary Registration Program.
The Justice Department (DOJ) says it has obtained Court Orders permanently Shutting Down “hundreds” of Shady Preparers in the past 10 years.
Since the 2014 Court Decision, there have been Bipartisan Bills focused on Paid Preparer Regulation. But they haven’t become Law. However, Passage could happen this time, given how much is riding on making sure Taxpayers get all the Money they’re Entitled to, said Mark Steber, Senior Vice President and Chief Tax Information Officer at Jackson Hewitt, a National Chain. Jackson Hewitt has long Supported Regulatory Standards, he said, just like many other Major Companies and Players in the Tax Preparation World. It’s critical to Protect Taxpayers, he said, but Multi-State Companies would also rather follow One Set of Laws instead of various State Laws where Preparers do need Licenses. “I don’t think there’s any real objection to this. It’s more the how,” Steber said. The “how” involves matters like whether Background Checks are needed, how many hours of Continuing Education, and who Pays for all that, he added. Jackson Hewitt Staff undergoes Annual Competency Tests, Steber noted.
The current Biden Bid is still Short on Specifics. A Treasury Department Notice said more Regulations would, among other things, include “stiffer penalties for unscrupulous preparers who fail to identify themselves on tax returns and defraud taxpayers.”
A spokesman for Intuit the Maker of TurboTax, said the Company employs Thousands of Certified Public Accountants and Enrolled Agents, “and we continue to support efforts to ensure that taxpayers seeking personal assistance in filing their taxes are receiving knowledgeable assistance like the professionals provide through Intuit offerings.”
The National Association of Tax Professionals (NATP) would have to see the Details of the Text before it took a Position, said Rhonda Collins, Director of Tax Content and Government Relations at the 23,000-Member Professional Association with Attorneys, Accountants, Enrolled Agents. and Non-Credentialed Preparers. In principle, Collins, an Enrolled Agent and Accountant, said that Tax Professionals who handle Areas prone to Error and Potential Fraud, like Returns with an Earned Income Tax Credit, should be Subject to more Oversight.
The American Institute of Certified Public Accountants (AICPA) is waiting for more Details on the Proposal, said Melanie Lauridsen, the Organization’s Senior Manager for Tax Policy and Advocacy. “We think that the legislative and executive branches should determine the appropriate level of service and compliance they want the IRS accountable to provide, and then dedicate adequate resources for the agency to meet those goals,” she said.
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