Two sets of panelists will discuss what to do with tax return preparers who lack proper certification during a Senate Finance Committee hearing tomorrow morning.
The hearing, entitled “Protecting Taxpayers from Incompetent and Unethical Return Preparers,” begins at 10 a.m. ET on April 8 and will be led by Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Orrin Hatch (R-UT).
Senators are scheduled to “examine the risks to taxpayers from tax return preparers who lack proper expertise or engage in unethical business practices and discuss ways to protect consumers.”
Two groups of panelists will also provide their input during the hearing. The first panel comprises IRS Commissioner John Koskinen and National Taxpayer Advocate Nina Olson.
The second group is expected to feature seven panelists, including:
- James McTigue Jr., director of tax issues, US Government Accountability Office (GAO)
- Wayne McElrath, director of investigative services, GAO
- William Cobb, president and CEO, H&R Block
- Janis Salisbury, chair, Oregon Board of Tax Practitioners
- John Barrick, PhD, associate professor, Brigham Young University
- Chi Chi Wu, staff attorney, National Consumer Law Center
- Dan Alban, attorney, Institute for Justice
According to IRS data cited in a February 17 Boston Globe article, there were 32 million returns submitted by preparers in 2011 who are regulated in their own field, such as accountants and tax lawyers. But there were 42 million returns that year that were submitted to the IRS by preparers who are not formally licensed and regulated.
“Right now anybody can say they are a preparer,” Koskinen told the Boston Globe in an interview. “There are reputable companies who provide training to their people, but there are a lot of people hanging out a shingle and you can do it without any qualifications at all.”
To become a tax preparer, all one has to do is obtain a 2014 Preparer Tax Identification Number (PTIN), which can be completed online in about 15 minutes; have both personal and tax information (such as Social Security number, previous year’s individual tax return, and explanations for any felony convictions) available as required by a PTIN application checklist; and pay a first-time fee of $64.25. Renewing your PTIN annually costs $63, according to the IRS.
On January 1, 2011, the IRS launched regulations that would require tax preparers to obtain a PTIN, pass a competency test, pay an annual application fee, and complete fifteen hours of continuing education annually. Only certain tax return preparers, including CPAs, enrolled agents, and tax attorneys, were exempted from the new testing and education requirements.
However, the IRS suffered a blow in federal appeals court on February 11 when a panel of three judges upheld a lower court’s ruling early last year that the agency did not have the legal authority to regulate the estimated 600,000 to 700,000 paid tax return preparers in the United States.
Alban, who will be on the second panel during tomorrow’s hearing, represented three independent tax preparers who filed a lawsuit against the IRS in 2012, claiming the agency’s regulations would result in fee increases, a loss of business, and possibly shuttering their mom-and-pop tax-preparation operations.
The IRS had pointed to a statute enacted in 1884 under Section 330 of Title 31 of the US Code that authorizes the agency to “regulate the practice of representatives of persons before the Department of the Treasury.”
But the panel of judges ruled that the IRS’s statutory authority under Section 330 could not be “stretched so broadly as to encompass authority to regulate tax return preparers.”
Robert Kerr, senior director of government relations for the National Association of Enrolled Agents (NAEA), said on Monday that taxpayers frequently find themselves in hot water because they hired a return preparer without adequate knowledge of tax rules and regulations. He said the NAEA believes Congress should provide the IRS with the power to make sure that paid preparers are at least minimally competent.
“Such a move would help taxpayers understand the varying qualifications held by credentialed tax preparers and lead to greater confidence in the tax-preparation industry as a whole,” he said in a written statement. “Should Congress fail to act, however, all is not lost. The IRS has had a program in place for decades, in which attorneys, CPAs, and enrolled agents have voluntarily subjected themselves to high and stringent standards. The IRS would be well-advised to promote that program heavily and without delay.”