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Tax Groups and Conservatives Gird for Battle Over Preparer Regs

Posted on Aug. 25, 2021

A new regulatory regime to establish who can legally prepare tax returns could be implemented within a year of its passage by Congress, but it may have some heavyweight opposition in the public square.

“There’s a lot that’s already known about how to go forward” with the Taxpayer Protection and Preparer Proficiency Act of 2021 (H.R. 4184), Kathy Pickering, head of H&R Block’s Tax Institute, said during an August 24 press call.

Two tax trade groups and a pair of large tax service businesses have joined forces to support the bill, introduced by House Ways and Means Committee member Jimmy Panetta, D-Calif., on June 25. The legislation, which would revive the IRS’s registered tax return preparer (RTRP) program, would require preparers to complete a background check; pass a one-time basic individual tax examination; and complete at least 15 hours of continuing education per year. The standards would be enforceable by IRS sanctions, up to and including removal of a practitioner’s preparer tax identification number. 

Dan Alban of the Institute for Justice said he hopes to mobilize FreedomWorks, Americans for Tax Reform, Americans for Prosperity, the National Taxpayers Union, Tea Party Nation, and other conservative activist groups to oppose the bill the same way they lobbied against previous preparer regulation proposals.

“H.R. 4184 is a protectionist attempt to raise barriers to entry and drive out competition from small independent preparers,” Alban told Tax Notes after the press call. Alban’s work was instrumental in shutting down the original RTRP program through his work for the plaintiffs in Loving v. IRS, No. 13-5061 (D.C. Cir. 2014), which found that the IRS lacked statutory authority to regulate tax return preparers.

But this time, Jeffery S. Trinca, legislative counsel for the National Association of Enrolled Agents, said, “I think there’s a window here” for incorporation of H.R. 4184’s provisions into a reconciliation package. Because the legislation scores revenue-positive, he said, “it’s very much sort of tailor-made for reconciliation.”

‘A Large Universe’

More than half of all tax returns for 2020 were prepared by a third party, but almost two-thirds of those third parties were unregulated and unaccountable, according to NAEA President David W. Tolleth.

“The timing of this legislation is critical,” Tolleth said. Enrolled agents’ practices are filling with people whose 2020 returns were prepared by unqualified or unscrupulous return preparers, he said.

Trinca said many initial contacts between taxpayers and Circular 230 enrolled agents and other tax professionals occur only after the taxpayer has received an IRS notice.

Participants in the August 24 press call included representatives of H&R Block and its tax institute, Padgett Business Services, the NAEA, and the American Institute of CPAs.

There are 760,000 PTIN holders registered with the IRS, according to Tolleth, but Trinca estimated that 460,000 of them operate without any professional credentials. “That’s a large universe, and the [IRS would] have the ability to track and essentially un-license, or at least suspend” and fine unlicensed return preparers, under H.R. 4184, he said.

“We don’t want to exclude people from entering into the practice, but simply just [ensure] that there is a basic minimum competency level and ethical standards,” said Melanie Lauridsen, AICPA senior manager for tax policy and advocacy.

‘Job-Killing Legislation’

Alban argued that H.R. 4184 is “completely unnecessary.” PTIN registrations already allow the IRS to track preparers’ returns and professional performance, and they allow violators to be fined or imprisoned, he said.

“It is completely unsurprising that large-industry incumbents and professional associations support this anti-competitive legislation that will benefit them financially,” Alban said.

Pickering noted that the IRS sought a minimum professional competency test, background checks, and continuing education requirements  — similar to the provisions in H.R. 4184 — before the RTRP program was dismantled. Using lessons learned from its earlier experience with the RTRP, she estimated that the IRS could implement the new legislation in as little as one calendar year.

But as one of the lawyers responsible for digging the original RTRP program’s grave, Alban said he saw no reason to support this one.

“Tax preparer licensing won’t fix any actual problems with tax preparation — and its supporters have never shown that it will — but it will increase the costs to become a tax preparer and thus enable large incumbents to consolidate their market share,” Alban said. “That is the true purpose of this job-killing legislation.”

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