The Biden Administration Wants To Give The IRS Authority To Regulate The ‘Wild West’ Of Paid Tax Preparers

Before a person can professionally cut hair, paint nails, or be a general contractor, they will need a license, but when it comes to preparing a tax return, a crucial transaction between taxpayers and the government with precision penalties, audits and Expecting Tax Bills Things Go Wrong: There are no federally required professional standards.

President Joe Biden‘s American Family Plan wants to change that by giving the Internal Revenue Service authority to regulate federally paid preparers. “Tax returns prepared by certain types of preparers have high error rates. These preparers charge high fees to taxpayers while exposing them to costly audits, ”said a White House report, asking lawmakers to pass a bill that gives the green light to the power of the IRS to oversee preparers. In a $ 1.8 trillion plan that could lead to more audits and more taxes for high-income households, advocates say this is a call for consumer protection that targets low-income families.

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“’Tax returns prepared by certain types of preparers have high error rates. These preparers charge high fees to taxpayers and expose them to costly audits. ” “- White House Report

And in a plan that would direct more money to low-income families through strengthened tax credits, it has never been more necessary, they add. To be clear, many tax professionals are trained and have licenses and accreditations to lose if they do something wrong. Registered attorneys, accountants, and agents can file tax returns. All must pass professional exams and take various continuing education courses. But there is another swath of unregulated preparers who simply obtain an easy-to-obtain “preparer tax identification number” before they can file their returns. Targeting low-income neighborhoods Sometimes they quickly set up shop in minority neighborhoods and then leave, observers say. Only a handful of states, like New York and California, have their own licensing standards, they note. After years of regulatory efforts, court fights and stagnant legislation, more supervision from preparers “has long been needed,” according to Rebecca Thompson, director of field engagement and the Taxpayer Opportunity Network at Prosperity Now. As low-income families try to recover from the pandemic, more generous credits are desperately needed, such as the Earned Income Tax Credit and the Child Tax Credit. The extended credits also represent an excellent opportunity for fraud, so it is essential that we have adequate security measures ”.

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“‘The extended credits also represent an excellent opportunity for fraud, so it is essential that we have the appropriate security measures in place.’ ”- Rebecca Thompson, Director of Field Engagement and the Taxpayer Opportunity Network at Prosperity Now

Thompson has seen the damage firsthand when unregulated, untrained preparers take a person’s cash and leave you with a statement riddled with errors, false tax credit claims, and an ongoing obligation to pay the IRS for your preparers’ errors. Thompson recalled helping a Jacksonville, Florida woman five years after her preparer artificially inflated earnings and wrongly claimed education credits without her knowledge. After the IRS knocked on the door, the woman was trapped with a tax bill of between $ 5,000 and $ 6,000 and was in danger of losing her access to public housing. Thompson recalled the “tough talk” about organizing a long-term IRS payment plan for women. “She was really upset and devastated,” Thompson recalled. “It’s still wide open,” said Nina Olson, a former National Taxpayer Advocate who has pushed for more standards and oversight of tax preparers during her career. Olson’s turning point, he said, was seeing a sign in the late 1990s of a used car dealer advertising on late-night television with a duck as a pet. The sign read: “File your taxes with the duck, use your refund for a truck.” Since then, you’ve heard of massage parlors, furniture stores, and dog groomers offering tax preparation services.

“Nina Olson, a former National Taxpayer Advocate, has heard of massage parlors, furniture stores, and even a dog groomer offering tax services. ”

Olson has called this most vulnerable spot in the paid tax preparer industry the “Wild, Wild West.” The rise of tax software made it easier for anyone to prepare returns, Olson said. Meanwhile, increased funding over the years for provisions like the EITC led more low-income households to file returns. If they couldn’t afford a lawyer or an accountant, he said they could resort to a “night flight” operation.

“Several preparers previously sued the IRS, saying it lacked the authority to create regulations for them on its own. ”

Beginning in 2002, Olson pushed for federal oversight of tax preparers. For 2011, the IRS put into effect its own rules that required paid tax preparers to register with the federal tax agency, take proficiency tests, and stay current on the tax code with 15 hours of annual continuing education. Those regulations applied to around 600,000 to 700,000 preparers. Several preparers sued, saying the IRS lacked the authority to make regulations like these on its own. A federal judge in Washington, DC, sided with the preparers. Members of the Washington DC Court of Appeals, including future Supreme Justice Brett Kavanaugh, confirmed the lower court’s decision in 2014. The IRS now has a voluntary registration program, Olson noted. (That directory can be found here.) The Justice Department says it has obtained court orders to permanently shut down “hundreds” of shady preparers in the past 10 years. on the regulation of the paid preparer. But they have not become law. However, approval could happen this time, given how much it depends on making sure taxpayers get all the money they are entitled to, said Mark Steber, senior vice president and chief information officer at Jackson Hewitt, a national network. Jackson Hewitt has long supported regulatory standards, he said, as have many other companies and major players in the world of tax preparation. Protecting taxpayers is critical, he said, but multistate companies would also prefer to follow one set of laws rather than multiple state laws where preparers need licenses.

“Multi-state companies prefer to follow a set of laws rather than multiple state laws where preparers need licenses. ”- Mark Steber, senior vice president and chief tax officer for Jackson Hewitt, a national network

“I don’t think there is any real objection to this. It’s more the how, ”Steber said. The “how” involves questions like whether background checks are needed, how many hours of continuing education and who pays for all that, he added. Jackson Hewitt staff undergo annual proficiency tests, Steber noted. Biden’s current offering is still short on details. A notice from the Treasury Department said more regulations would include, among other things, “more severe penalties for unscrupulous preparers who fail to identify themselves on tax returns and defraud taxpayers.” A spokesperson for Intuit INTU, -0.96%, the maker of TurboTax, said the company employs thousands of certified public accountants and registered agents, “and we continue to support efforts to ensure that taxpayers seeking personal assistance in filing their taxes are receiving informed assistance. how professionals provide through Intuit offerings. “The National Association of Tax Professionals would need to see the details of the text before taking a position, said Rhonda Collins, director of tax content and government relations at the 23,000 professional association members with attorneys, accountants, registered and unaccredited agents Preparers Initially, Collins, a registered agent and accountant, said that tax professionals who handle areas prone to errors and potential fraud, such as returns with an income tax credit from the work should be subject to more oversight. The American Institute of Certified Public Accountants is awaiting more details on the proposal, said Melanie Lauridsen, senior manager for tax policy and advocacy for the organization. appropriate level of service and compliance they want the IRS is held accountable for providing, and then dedicating adequate resources for the agency to meet those goals, ”he said. “We think the IRS should be doing this job,” Steber said. “Right now, no one is doing this job.” Paraphrasing a comment years ago by Senator Chuck Grassley, an Iowa Republican, Steber said that a person’s hairdresser “has more regulatory oversight these days than his tax preparer, and that’s not correct.”