Return Preparer Proposal in 118th Congress

The IRS started their return preparer regulation back around 2009. It was severely limited by the DC Court of Appeals 2014 decision in Loving v IRS, No. 13-5061 which concluded that 31 USC 330 did not provide the IRS or Treasury with the authority to regulate return preparers as preparing a return was not representing a taxpayer before the IRS.

Since then there have been proposals to change 31 USC 330 to give the IRS the authority to regulate return preparers. A current version of such as proposal is H.R. 2702 / S. 1209, Tax Refund Protection Act. While this sounds like something else, it would change 31 USC 330 to allow the IRS and Treasury to "certify the practice of tax return preparers" and require preparers to demonstrate competency to advise and assist person in preparing tax returns, claims for refund or other submissions related to Title 26. This should enable the IRS to resume their earlier program of requiring any paid preparer who is not an attorney, CPA or Enrolled Agent to become a registered tax return preparer by passing a test and being required to meet a specified number of hours of continuing education annually before renewing their PTIN. The proposal also specifically allows the IRS to impose an annual fee for the testing and training.

The bill goes further by imposing restrictions on refund anticipation loans and adding a new obligation at Section 7813, Disclosure requirements for tax return preparers, to provide specific information about any RAL offered to the client with a new penalty at Section 6720D, Failure to meet disclosure requirements for tax return preparers.

Why is it taking so long to make this change that has been supported by the Biden* and Trump** administrations, supported by National Taxpayer Advocates Nina Olson and Erin Collins (see background in NTA 2022 Annual Report to Congress noting the NTA recommendation dates back to 2002)? 

  *FY2024 Greenbook, page 181 includes a proposal to expand and increase penalties for noncompliant return prep and e-filing and authorize IRS oversight of paid preparers

  **Per FY2019 OMB report: "Ensuring that these preparers understand the tax code would help taxpayers get higher quality service and prevent unscrupulous tax preparers from exploiting the system and vulnerable taxpayers." [page 91]

Reasons to support regulation include that it should reduce the number of errors on returns and the tax law is complex and some verification of meeting a minimum standard should help preparers and their clients.

The 2022 NTA Report to Congress notes that "lack of minimum competency standards harms taxpayers in the following ways:

• Taxpayers may not understand the differences in the education and training requirements of various return preparer credentials; 
• Taxpayers are ultimately financially responsible for inaccurately prepared tax returns; 
• Low-income taxpayers are at significant risk of harm caused by incompetent or unscrupulous return preparers; 
• Research studies and IRS data found more noncompliance among non-credentialed return preparers;
• Non-credentialed preparers cannot represent taxpayers on audits of prepared returns; 
• Not all return preparers are subject to standards of conduct or ethical rules; and 
• The lack of minimum competency standards forces the IRS to take a reactive approach to return preparer noncompliance."

Per IRS data, there are 752,313 PTIN holders. The largest group of PTIN holders are individuals who are not an attorney, CPA, Enrolled Actuary, Enrolled Agent or person who has completed the 2023 Annual Filing Season Program. This number is not highlighted on the data page, but doing the math, it is 404,890. The second largest group are CPAs at 201,538, followed by 2023 Annual Filing Season pass holders at 60,744, which surprisingly is larger than the EA group of 57,177.

I think it would be helpful if the table at the IRS data site specifically stated the number of unenrolled preparers to highlight that it continues to be over 50% of total preparers. A few states have some regulation of return preparers, such as California. California reports that for 2021-2022, there were 38,278 CTEC preparers who do have to take a 60-hour course and have 20 hours of CE annually to renew their CTEC designation, and purchase a $5,000 tax preparer bond. But this still leaves a lot of preparers who might not have taken any tax courses and might not engage in continuing education.

For sound tax administration and to help more taxpayers get appropriate assistance in preparing their return and engaging in tax planning, providing training to preparers along with testing should be helpful. I hope the costs can be kept low with training appropriate for the types of returns the preparer works on.

With bipartisan support, why is this longstanding open issue still open?

What do you think?