Bill Gives IRS Power Over Tax Prep, But Should It?

The annual tax filing nightmare is about to start, with millions of Americans struggling. About half of all people use tax preparers. Even members of Congress—who write the tax laws—overwhelmingly say they cannot prepare their own returns. It’s no wonder given the complexity and the stakes. And its getting worse.

With Obamacare, even more people won’t be able to prepare their own. Many lower and middle income people with previously simple returns may now need a pro. And make no mistake, the tax preparation business involves big bucks. The industry is dominated by big players like H&R Block® and Liberty Tax Service. However, there are many mom and pop providers too.

The latter have the most to lose by efforts to regulate them. They will be more burdened by regulatory compliance and more impacted by compliance glitches or sanctions than the big boys. The battle over who can impose rules and conditions is not new and has already been to court. Two courts held that the IRS didn’t have the power to do what it was doing. But now, a new federal bill would give the IRS broad regulatory control.

Donald Rumsfeld

Senate Finance Committee Ranking Member, Ron Wyden, D‐Ore., and Senator Ben Cardin, D‐Md., proposed legislation to give the IRS explicit authority to regulate paid tax return preparers. They call the bill the “Taxpayer Protection and Preparer Proficiency Act of 2015.” It is a direct response to the court case, Loving v. IRS, which held that the IRS had exceeded its authority with mandatory testing and continuing education of tax preparers.

The IRS lost again when a federal appeals court upheld the decision. Now, the IRS has a voluntary program for education and testing of preparers, and this list of requirements for tax return preparers and frequently asked questions. But the IRS wants more. After it lost in court, the IRS issued a statement on the court ruling. The IRS was forced to argue in court that its regulatory power emanated from an 1884 law dealing with claims for horses killed during the Civil War.

The Wyden-Cardin bill would fix all that, requiring preparers to demonstrate competency to IRS satisfaction. But some say it is all about complexity. According to Sen Wyden, “It’s bad enough that taxpayers have to navigate their way through an overly complex tax code, but worse that many also unknowingly rely on fraudulent or incompetent tax preparers to help with their returns.” “This bill helps protect hard working taxpayers by ensuring that tax preparers are held to clear and enforceable standards.”

Former Defense Secretary Donald Rumsfeld last year fired off this letter. Although he and his wife both signed their tax returns under penalties of perjury, he issued a harsh confession: “The tax code is so complex and the forms so complicated,  that I know that I cannot have any confidence that I know what is being requested and therefore I cannot and do not know, and I suspect a great many Americans cannot know, whether or not their tax returns are accurate.”

via The Tax Lawyer


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