Senate bill targets preparers who break the law, expands IRS reforms

Tougher penalties for tax preparers who break the law are included in a sweeping bipartisan Senate bill designed to overhaul IRS operations and strengthen taxpayer service.

Senate Finance Committee Chair Mike Crapo, R-Idaho, and ranking committee member Ron Wyden, D-Ore., introduced the Taxpayer Assistance and Service Act (TAS Act) on Thursday. The bill follows a discussion draft filed last year.

In addition, the U.S. House of Representatives has approved several IRS-related bills, including H.R. 1152, the Electronic Filing and Payment Fairness Act, that extend the “mailbox rule” to electronically submitted tax returns and payments to allow the IRS to record payments and documents submitted electronically on the date they are sent instead of when they are received or reviewed at a later date.

Tax preparer penalties

A penalty applies to a tax return preparer who prepares a return that unreasonably understates a liability or who violates other rules under Sec. 6694, 6695, or 6695A. However, these penalties do not apply when a tax return preparer alters the taxpayer’s return after it has been signed (e.g., to claim an unreasonably large refund or by altering the taxpayer’s direct deposit information to have the refund deposited into the preparer’s account). Preparer penalties do not apply because the altered submission is not considered a “return,” and the preparer penalties only apply to the preparation of returns.

Section 501 of the TAS Act amends Sec. 6696(e) to expand the definition of a “return” for purposes of preparer penalties to include, among other things, a document that purports to be a return. This provision would be effective on the date of enactment of the TAS Act.

The current penalty under Sec. 6695(c) for failure to provide a preparer tax identification number (PTIN) does not clearly apply to a preparer who provides the taxpayer with the wrong PTIN, another person’s PTIN, or a PTIN that has been suspended. Section 502 of the TAS Act amends Sec. 6995(c) to provide that unless a preparer had reasonable cause, a penalty of $250 is imposed for each failure to furnish a valid PTIN, up to a maximum of $75,000.

Also, to deter ghost preparers who intentionally violate the rules, Section 502 of the TAS Act adds new Sec. 7218, making it a felony, punishable by a fine of up to $50,000 ($100,000 in the case of a corporation) or two years in prison, or both, to willfully fail to furnish a PTIN, willfully furnish an invalid PTIN, or willfully furnish a PTIN assigned to another person.

The amended Sec. 6995(c) and the new Sec. 7218 would apply to returns or claims for refund filed after the date that is 18 months after the date of enactment of the TAS Act. 

Under Section 503 of the Act, certain penalties under Sec. 6695 for existing violations would increase. For example, the Sec. 6695(b) penalty for failure to sign a copy of a return, now at $60 per offense or a maximum of $33,000 (as adjusted for inflation by Rev. Proc. 2025-32) would be $250 and $50,000 (adjusted for inflation). The Sec. 6695(g) penalty for failure to comply with certain due-diligence requirements would increase to $1,000 per occurrence (adjusted for inflation) from the current $635 (as adjusted for inflation by Rev. Proc. 2025-32), with no maximum amount in either case. These changes to the penalties would be effective on the date of the enactment of the TAS Act.

“Crooked tax return preparers are regularly exploiting taxpayers to pad their own bottom lines, and the worst part is, taxpayers might not even realize they’ve been ripped off until it’s too late,” Wyden said in a news release. “This bipartisan bill has been in the works for years, and it’s a major opportunity to improve IRS taxpayer service, protect taxpayers, and help them get their refunds on time.”

AICPA support

The AICPA supports the bill but also seeks further improvements, said Melanie Lauridsen, the AICPA’s vice president–Tax Policy & Advocacy.

“The TAS Act is a meaningful step toward a tax system that better supports taxpayers,” Lauridsen said. “By addressing inefficiencies and modernizing outdated processes, this legislation would ease unnecessary burdens and improve how taxpayers and practitioners interact with the IRS through provisions such as those found in the [Simplify Automatic Filing Extensions] Act.

“Additional key provisions will help the profession best meet taxpayers’ needs and establish clear, minimum educational, ethical, and professional standards for paid tax preparers.”

National Taxpayer Advocate Erin Collins said in the news release that the bill would “strengthen taxpayer rights, reduce taxpayer burden, and improve tax administration.”

Other provisions

Other key provisions of the bill would upgrade online accounts and tools; expand callback options; allow the U.S. Tax Court to hear refund cases; and increase the independence of the national taxpayer advocate and the IRS Independent Office of Appeals.

“The process of filing your tax return and receiving your refund should be simple and fast,” Crapo said in the news release.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.