AICPA Expresses Concerns About Tax Return Preparer Legislation

Proposed legislation that would give the IRS broad authority to regulate paid tax return preparers is too broad, the AICPA said Tuesday in a letter to the Senate Finance Committee. The letter, from AICPA Tax Executive Committee Chair Troy Lewis to Chairman Orrin Hatch, R-Utah, and Ranking Member Ron Wyden, D-Ore., commends the committee for its efforts to fight identity theft and tax fraud but expresses concerns the AICPA has with aspects of the bill.

The as-yet unnumbered bill, introduced by Wyden and Sen. Ben Cardin, D-Md., is scheduled for markup by the Senate Finance Committee on Wednesday. [Update: On Wednesday, the committee postponed its planned markup and vote on the bill.] Most of the bill’s provisions are aimed at preventing identity theft and tax fraud, and include requiring the IRS to develop guidelines for identity theft refund cases, to report on identity theft refund fraud, and to study the feasibility of blocking e-filed returns when a taxpayer has filed an identity theft affidavit. The bill would also increase the civil penalty under Sec. 7216 for unauthorized disclosure or use of taxpayer information by tax return preparers.

The bill would also give the IRS authority to regulate all aspects of federal tax practice. Specifically, it would amend Title 31 of the U.S. Code to encompass all tax practice, regardless of whether it includes representation before the Treasury Department.

In 2014, the IRS’s attempts to regulate paid tax return preparers through regulatory action were struck down by the D.C. Circuit because the IRS’s current authority to regulate practitioners, under 31 U.S.C. Section 330, only permits it “to regulate the practice of representatives of persons before the Department of the Treasury,” and the court held that tax return preparation is not representation before Treasury.

In his letter, Lewis notes that the AICPA is a “steadfast supporter of the goals of enhancing compliance and elevating ethical conduct” but has “serious concerns and misgivings about granting the IRS unlimited authority to regulate tax return preparers.”

Instead of a broad grant of authority, the AICPA recommends that Congress grant “specific authority necessary to address the concerns of incompetent and fraudulent, currently-unenrolled tax return preparers.” At a minimum, Lewis writes, Congress should limit the IRS’s authority to require a preparer tax identification number (PTIN) and require it to take steps to reduce confusion in the marketplace.

The IRS should be limited to requiring PTINs only from (1) individuals who sign a tax return or claim for refund and (2) individuals who are involved in the preparation of tax returns or claims for refund but are not supervised by an attorney, CPA, or enrolled preparer, the letter says.

To reduce marketplace confusion, the AICPA recommends that currently unenrolled PTIN holders who represent themselves in advertising as PTIN holders, registered tax return preparers, or any new type of IRS category of tax return preparer to include a statement explaining the differences between the types of preparers and “educating the public that the IRS does not endorse any particular tax return preparer.”

The Joint Committee on Taxation has estimated that the bill would raise $286 million in revenue over 10 years, if enacted.

—Alistair M. Nevius (anevius@aicpa.org) is The Tax Adviser’s editor-in-chief.