Introduction to Tax-Preparer Regulation Legislation

Introduction to Tax-Preparer Regulation Legislation


Anyone preparing a tax return for compensation must have a PTIN issued by the IRS, but there are no requirements associated with obtaining a PTIN—no advance training, no continuing education, and no ethical standards to abide by. On the other hand, CPAs, enrolled agents (EAs), and attorneys have strict ethical standards, educational or testing requirements, and continuing education requirements that keep them up to date with the latest tax-law changes. 


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While some states require paid preparers to register and pay a fee, only California and Oregon have comprehensive programs that include annual registration and verified continuing-education requirements. In addition, the IRS has a voluntary program that includes annual continuing-education requirements. 

Thus, anyone—except in California and Oregon—who is not a CPA, EA, or attorney can declare themselves to be a tax preparer without needing any tax education. 

The IRS has previously attempted, without Congressional authority, to regulate the tax-preparer profession, including registration, testing, and continuing education. But, as the result of a lawsuit (Loving v. IRS) filed by a group of unregulated tax preparers, a federal judge invalidated the program in 2013, ruling that the IRS lacked the statutory authority to regulate preparers. 



See this related post from Dennis HarabinAvoiding IRS Tax Underpayment Penalties

Congress considers our tax system a “pay-as-you-earn” system. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-earn” requirement. These include: Payroll withholding for employees; Pension withholding for retirees; and Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding.



The Biden administration’s American Families Plan calls for Congress to pass bipartisan legislation that will give the IRS the statutory authority to regulate the tax-preparer profession. Currently, tax returns prepared by certain types of preparers have high error rates. These preparers charge taxpayers large fees while exposing them to costly audits by claiming deductions and credits to which taxpayers are not entitled.

Reps. Jimmy Panetta, D-California, and Tom Rice, R-South Carolina, have introduced the bipartisan Taxpayer Protection and Preparer Proficiency Act, which would permit the IRS to regulate paid tax preparers and mandate minimum competency standards. 

According to Rep. Panetta, “Mistakes by incompetent tax preparers have led to many taxpayers getting audited or penalized through no fault of their own.” He further commented, “My bipartisan legislation will help prevent such predicaments by allowing the IRS to regulate paid tax preparers and ensure that they are meeting minimum competency standards. Anybody who pays for their taxes to be prepared deserves to know that their tax preparers are professional, proficient, and principled and, if not, will be held accountable by the IRS.”



See this related post from Dennis Harabin: The IRS Backlog Is Causing Taxpayer Heartburn

Before the COVID-19 pandemic, the IRS was getting refunds out swiftly and responded to calls and correspondence in a reasonable amount of time. However, COVID-19 brought about a perfect storm of delays, initially caused by employees having to stay home because lockdowns prevented processing centers from operating and workers from going to their offices. And in most instances, IRS employees could not work from home because of the secure nature of their tasks and the IRS’s computer system. 



Rep. Rice also commented, “The Taxpayer Protection and Preparer Proficiency Act will reduce error rates, lower risks for taxpayers, and help put a stop to the use of unqualified tax preparers. Since the federal government dictates our obligation to file taxes, we ought to allow the IRS to ensure that those who taxpayers turn to for assistance are well qualified.”

If you have been using an untrained and unregulated tax preparer and have concerns about whether your return has been prepared correctly, please call this office at 551-249-1040 for a review. Uneducated preparers frequently overlook legitimate deductions and credits, especially with all of the new benefits available during the COVID pandemic.


Dennis Harabin at Relax Tax is an expert in taxes, insurance, and debt. Contact him today!


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