IRS proposing federal standards for tax return preparers

Tax preparer registration may not be best answer to reduce errors

The IRS will be proposing a comprehensive set of recommendations ensure uniform and high ethical standards of conduct for tax preparers. Among the most significant recommendations is a new model for the regulation of tax return preparers.

IRS Commissioner Doug Shulman said the IRS has to ensure “all preparers are ethical, provide good service and are qualified.” The announcement follows IRS National Taxpayer Advocate Nina E. Olson’s recommendations to Congress over the past several years that there needs to be a registration program for unlicensed tax return preparers.

The AICPA strongly supports the implementation of high professional standards for tax practitioners, including the AICPA Code of Professional Conduct and the Institute’s enforceable Statements on Standards for Tax Services. However, the profession’s leadership is not convinced that congressional or regulatory agency proposals calling for the regulation of unlicensed tax practitioners will accomplish the stated objectives of reducing errors.

The IRS announcement did not offer any specifics on what the proposals may entail. AICPA and congressional staff and IRS officials have met to discuss tax preparer registration in the past and will continue to do so. The IRS indicated it will use an open and inclusive discussion process – one that described as “transparent.” He emphasized that the IRS wants to “hear from the broadest possible range of stakeholders.”

"We have been monitoring this issue for several years and the AICPA will work closely with IRS Commissioner Shulman and his staff as they move forward,” said AICPA President and CEO Barry Melancon.  “Clearly, we support the two goals of increasing compliance and maintaining high ethical standards. We have publicly expressed concerns about previous attempts to regulate tax preparers and we hope the IRS will avoid the pitfalls of those past efforts."

Also at the hearing, Rep. Xavier Becerra, D-Calif., said he plans to reintroduce his bill regulating unlicensed preparers. Past legislation to regulate preparers has generally been proposed by members of Congress as a partial response to high error rates associated with the Earned Income Tax Credit (EITC) and consumer protection concerns related to refund anticipation loans (RALs).

The IRS, however, has authority to regulate tax return preparers through the penalty authority under current law.  The Internal Revenue Code permits the Service to assess (among others) penalties for:

• the understatement of a taxpayer’s liability (section 6694)
• the failure to furnish a copy or to sign the return (section 6695)
• the promotion of abusive tax shelters and gross valuation overstatements (section 6700)
• the aiding and abetting of the understatement of tax liability (section 6701)
• actions to enjoin certain conduct by preparers or promoters (sections 7407 and 7408)

The AICPA believes the IRS already has the tools necessary to ensure reduced-error tax returns and proper registration methods and should resist overburdening tax preparers with redundant and potentially costly regulation requirements.

The IRS plans to submit recommendations to the Treasury Secretary and the President by the end of the year. The following recommendations will also be made as part of the IRS proposal:

• Service and outreach for return preparers
• Education and training of return preparers
• Enforcement related to return preparer misconduct

The first part of this groundbreaking effort will involve fact finding and receiving input from a large and diverse constituent community that includes those that are licensed by state and federal authorities — such as enrolled agents, lawyers and accountants — as well as unlicensed tax preparers and software vendors. The effort will also seek input and dialog with consumer groups and taxpayers.

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