A pair of lawmakers introduced bipartisan legislation to regulate tax preparers in the latest effort to ferret out unqualified preparers.
Rep. Jimmy Panetta, D-California, and Tom Rice, R-South Carolina, introduced the Taxpayer Protection and Preparer Proficiency Act last week. This legislation would enable the Internal Revenue Service to regulate paid tax preparers and mandate minimum competency standards. The bill has received support from the American Institute of CPAs, the National Association of Enrolled Agents and the National Association of Tax Professionals.
The bill is the most recent bid to regulate the tax preparer profession. During the Obama administration, the IRS began to roll out the Registered Tax Return Preparer Program, or RTRP, which required registration, testing and continuing education for preparers. But after a lawsuit filed by a group of independent tax preparers in the case of Loving v. IRS, a federal judge invalidated the program in 2013, ruling that the IRS lacked the statutory authority to regulate preparers, although it could still require them to register with a Preparer Tax Identification Number, or PTIN. Since then, regulation of unenrolled tax preparers has been a longstanding goal of the IRS, and the IRS switched to offering a voluntary program known as the Annual Filing Season Program. CPAs, enrolled agents and tax attorneys have long been subject to testing and continuing education by professional organizations, however. Since the Loving case, other bills have been introduced in Congress to regulate unlicensed preparers, and the Biden administration included a proposal in its American Families Plan (
The bill’s proponents noted that due to the current lack of regulation of many preparers, the IRS receives tens of thousands of complaints per year about insufficient services. While tax preparers can be prosecuted for fraud, the current precedent bars prosecution for incompetence.
The Taxpayer Protection and Preparer Proficiency Act would require tax preparers to demonstrate competency in preparing returns, claims for refund, and associated documents. The legislation also would require preparers to complete continuing education requirements. In addition, the IRS would be granted the authority to rescind the PTINs of preparers who were found to be incompetent or fraudulent.
“Mistakes by incompetent tax preparers have led to many taxpayers getting audited or penalized through no fault of their own,” Panetta said in a statement. “My bipartisan legislation will help prevent such predicaments by allowing the IRS to regulate paid tax preparers and ensure that they are meeting minimum competency standards. 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.”
The bill would give the Treasury the authority to regulate paid tax return preparers, and clarifies that the authority being provided is to reinstitute the IRS’s 2011 paid preparer regulatory program, the RTRP. It would also clarify that certain non-signing preparers — those who prepare returns under the supervision of an attorney, CPA or enrolled agent — are not required to obtain a PTIN. The bill would also require a GAO study on the sharing of information between the Treasury Department and state authorities about PTINs issued to paid return preparers and preparer minimum standards.
Lawmakers contend that the bill would reduce error rates from unqualified preparers. “Folks across America rely on tax preparers and they expect that the preparers are qualified and competent,” Rice said in a statement. “The Taxpayer Protection and Preparer Proficiency Act will reduce error rates, lower risks for taxpayers, and help put a stop to the use of unqualified tax preparers. 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.”
The AICPA praised the legislation. “We are grateful for the bipartisan leadership shown by Representatives Panetta and Rice to address incompetent and unscrupulous tax return preparers and maintain taxpayer confidence in our tax system,” said AICPA president and CEO Barry Melancon in a statement. “For many years, the AICPA has steadfastly supported enhancing compliance and elevating ethical conduct throughout the tax preparation industry. Taxpayers need and deserve these protections, and we must ensure that the IRS has the tools it needs to conduct appropriate oversight.”
The AICPA said Wednesday it would also continue to pursue another consumer-protection measure to look out for taxpayers’ best interest by ensuring truth in advertising. That measure would require unlicensed PTIN holders who represent themselves as a registered tax return preparer in any paid print, television, radio or other advertising display or broadcast a statement directing taxpayers to the IRS website where the differences between the various types of preparers are explained.
“The AICPA is pleased to endorse this bill and we appreciate Representatives Panetta and Rice for working together to introduce this important legislation,” said AICPA vice president of taxation Edward Karl in a statement Wednesday. “Ensuring that tax preparers are competent and ethical, and that the IRS has the tools it needs to conduct appropriate oversight, is critical to maintaining taxpayer confidence in our tax system and protecting the interests of the American taxpayer.”
The National Association of Enrolled Agents also lent its support. “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. We look forward to its enactment,” said NAEA president David W. Tolleth in a statement.
The National Association of Tax Professionals is also backing the bill. “The rules governing tax returns are complex, and a robust knowledge of the law is required,” said NATP executive director Scott Artman in a statement. “Additionally, the information required to file a return accurately is highly sensitive. It is important for the IRS to ensure that tax return preparers who are offering their services to the public are held to a standard that corresponds with the importance of the role that they play and the information they have access to. Reducing the tax gap will take a combination of efforts, one of which is requiring those who are paid for tax preparation to meet required standards. For these reasons, we believe in the necessity for the regulation of tax return preparers.”
At least one tax prep firm is also on board with the bill. “With policymakers in Washington relying more and more on the tax code to assist small businesses — everything from PPP loans to the Employee Retention Tax Credit — it is imperative that preparers be competent and honest,” said Padgett Business Services president and COO Roger Harris in a statement. “This legislation will go a long way to ensuring that.”
