Through March 27, the Internal Revenue Service had received just more than 88.4 million tax returns. Most of those filings — nearly 87 million — were submitted electronically.
And more than have of those e-filed 1040 forms — almost 45.9 million — were completed and filed on taxpayers’ behalf by paid tax professionals.
The good news for most of these taxpayers is that most tax pros are reputable and do a good job. But most is not all.
That small percentage of tax pros who break bad is why some, including professional organizations, the National Taxpayer Advocate, and the IRS itself, have long lobbied for more tax preparer oversight.
A recent Government Accountability Office (GAO) report agrees. It found that in some circumstances, unregulated preparers can make errors at a higher rate than taxpayers who prepare their own returns.
An IRS-wide preparer strategy with centralized leadership for protecting taxpayer data could improve oversight of paid preparers, notes the GAO.
Long-fought oversight battle: The idea of giving the IRS more power to oversee certain types of pair tax preparers is a contentious fight that’s been going on for more than a decade.
Although a few states do license and require regular tax competency testing of tax preparers, efforts to institute the same standard at the federal level have failed.
Opponents say that IRS regulation of tax preparers would create undue burdens on the majority of honest tax pros. That argument was key in a federal lawsuit that in 2014 halted the IRS’ attempt to regulate tax pros.
Following that judicial loss, the tax agency took the voluntary credentialing route. The IRS’ Annual Filing Season Program (AFSP) for non-credentialed return preparers — that is, tax preparers who are not CPAs, Enrolled Agents, or tax attorneys — is still in effect.
But the IRS and others still want some sort of formal tax professional oversight.
Latest effort to allow IRS oversight: A more formal regulation of tax preparers was a key part of the recent GAO report.
“Congress could improve federal oversight of paid preparers by granting IRS authority to establish professional standards for paid preparers and security requirements for IT systems of paid preparers, as we previously recommended,” noted the GAO.
The government watchdog’s findings dovetails with bipartisan U.S. Senate legislation, the Taxpayer Assistance and Service (TAS) Act (S. 3931), that was introduced in late February and would establish minimum requirements for preparers.
The TAS Act also would increase penalties for preparer misconduct, such as failing to provide a valid Preparer Tax Identification Number (PTIN) or misappropriating client refunds, and create new criminal penalties for willful failures.
Pro regulating certain tax pros: The GAO report, “Paid Tax Return Preparers: Opportunities Remain to Improve IRS Oversight,” earns this weekend’s Saturday Shout Out.
But it’s just one part of the paid tax preparer oversight issue getting recognition this weekend from the ol’ blog.
A second shout goes out to a recent episode of the AICPA’s Journal of Accountancy podcast that took a deeper dive into tax preparer regulation.
The show’s host Neil Amato was joined by two AICPA tax experts from organization’s Washington, D.C., office — Melanie Lauridsen, vice president of Tax Policy & Advocacy, and Todd Sloves, director of Congressional & Political Affairs — to examine not only the GAO report, but also the pending TAS Act and other related legislation.
This weekend’s third shout out goes to the TAS Act itself. U.S. Senate Finance Committee Chairman Mike Crapo (R-Idaho) and Ranking Member Ron Wyden (D-Oregon) on Feb. 26 introduced the bill they say will “make an array of commonsense fixes to Internal Revenue Service (IRS) procedure and administration.”
Tax preparer regulation is, you guessed it, part of the bill.
“One of the most absurd things about our tax system is that its complexity forces millions of Americans to turn to paid tax return preparers ever year, but there are zero minimum standards in place to ensure those paid preparers actually know what they’re doing or follow the law,” said Wyden in the statement announcing this latest version of the TAS, which the pair has championed in previous Congressional sessions.
Crapo’s and Wyden’s proposal incorporated legislative proposals recommended by the National Taxpayer Advocate (NTA) Erin M. Collins. Collins’ NTA Blog post “The TAS Act Strikes a Reasonable Balance on Return Preparer Oversight” on the early TAS discussion draft also earns a Saturday Shout Out.
Finally, The Washington Post’s financial columnist Michelle Singletary mentions the GAO report, as well as a mystery tax pro shopper investigation by the Center for Taxpayer Rights, in her article “How a shady tax preparer’s practices can lead to costly IRS trouble.”
Singletary’s warnings about how to spot a questionable tax preparer definitely deserve a shout out, too.
You also might find these items of interest:
- Biden Administration seeks IRS oversight of some tax pros
- Tax preparer regulation among ETAAC’s 12 recommendations
- Tax law changes highlight the importance of professional tax help
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