Proposed budget contains tax reform provisions and would authorize regulation of tax return preparers

Editor: Sally P. Schreiber, J.D.

The Office of Management and Budget (OMB) released President Donald Trump’s proposed Budget of the U.S. Government for FY 2018 on May 23 (available at www.whitehouse.gov. Included in the proposals were several tax items, including a proposal to authorize the IRS to regulate all paid tax return preparers.

The budget proposal calls for giving the IRS “statutory authority to increase its oversight of paid tax return preparers.” The proposal would be effective upon enactment. The OMB’s “Analytical Perspectives” on the budget says that this will decrease the “need for after-the-fact enforcement of tax laws and increase the amount of revenue that the IRS can collect.” It estimates that the proposal will increase revenue by $259 million in the years 2018-2027. An attempt by the IRS to regulate unenrolled tax return preparers was struck down by a federal court in 2013, on the grounds that the Service lacks statutory authority to impose rules on return preparers who are not practicing before the IRS (Loving, 742 F.3d 1013 (D.C. Cir. 2014), aff’g 917 F. Supp. 2d 67 (D.D.C. 2013)).

AICPA position:The AICPA has been a steadfast supporter of the goals of enhancing compliance and elevating ethical conduct. Ensuring that tax preparers are competent and ethical is critical to maintaining taxpayer confidence in our tax system. Indeed, these goals are consistent with the AICPA’s own Code of Professional Conduct and enforceable tax ethical standards. For these reasons, the AICPA believes that a focused and targeted approach to the regulation of tax return preparers, with congressional oversight, will help to promote good tax administration and protect the interests of the American taxpayer; and looks forward to working with policymakers as this proposal develops.

Error correction authority

The budget also calls for giving the IRS more flexible authority to address correctable errors. The proposal would expand the IRS’s authority to correct errors on a return to include cases where (1) the information provided by the taxpayer does not match information the IRS has in its databases; (2) the taxpayer has exceeded the lifetime limit for claiming a particular credit or deduction; or (3) the taxpayer has failed to include with the return required documentation.

IRS funding

The budget also calls for $10.975 billion in funding for the IRS. (This compares with $11.2 billion in funding for FY 2017 in the recently enacted Consolidated Appropriations Act, 2017, P.L. 115-31.) This amount includes $2.2 billion for taxpayer services, $4.7 billion for enforcement, and $3.9 billion for operations support. The proposal would also give the IRS $110 million for business systems modernization.

Tax reform

In addition to the above specific proposals, the budget calls for a “comprehensive overhaul to our tax code” to encourage economic growth and investment and reiterates several principles that the Trump administration would like to see incorporated into tax reform. It also assumes any tax reform will be revenue-neutral.

For individuals, the budget calls for:

• Lower income tax rates;
• An increased standard deduction;
• Help for child and dependent care expenses;
• Protection for homeownership, charitable giving, and retirement savings; and
• Repeal of the alternative minimum tax, the net investment income tax, and the estate tax.

For businesses, the budget calls for:

• Lower tax rates;
• Elimination of most tax breaks;
• A move to a territorial system of taxation, including a one-time repatriation tax on accumulated overseas income.

The budget overview says that these principles will guide the administration’s “discussions with taxpayers, businesses, Members of Congress, and other stakeholders.”