IRS Two Steps Closer to Regulating Tax Preparers

IRS Two Steps Closer to Regulating Tax Preparers

The IRS strategy to require independent, non-credentialed tax preparers took two steps forward in February. Both steps are designed to establish required education and licensing for the estimated 111,000 independent tax preparers in the US.

The first step was contained in the FY2017 Budget proposed by President Obama. The proposal is for a $4.1 trillion spending plan, complete with a massive $2.8 trillion tax hike. Among the sweeping tax changes proposed are higher tax rates on top earners and a 24-cents-per-gallon tax increase on each gallon of gasoline.

One of the other proposals would remedy the issue that the IRS encountered when it attempted to regulate tax preparers beginning in 2011 – the lack of statutory authority to do so. The US District Court for Washington, DC struck down the proposed IRS regulatory scheme in the case of Loving, No. 12-385 (D.D.C. 1/18/13)). A part of the new proposal, however, would give the Secretary of the Treasury explicit authority to regulate all paid tax return providers, beginning on the date of enactment.

That proposal would be accompanied by a $515 million increase in funding for enforcement and compliance programs. That amount would be increased thereafter through 2026. The funding increase would be via a program integrity cap adjustment, which adjusts discretionary spending limits on core programs.

The second step came in the form of a Bloomberg report (see “Do Tax Preparers Know What They are Doing?” at documenting failure and incompetence by independent tax preparers.

The Bloomberg report from February 2016, is consistent with other such research. In 2015, the National Consumer Law Center (see tested 29 tax prep offices and found only two forms completed correctly. Of 19 tax preparers selected at random by the Government Accountability Office in 2014 found only two that calculated the correct refund amount.

The studies are not large enough to be statistically valid for the entire profession. Even IRS Commissioner John Koskinen notes that, "Most preparers provide high-quality service but we run across cases each year where unscrupulous preparers steal from their clients and misfile their taxes.” Read more on CPA Practice Advisor.