Congress Introduces Tax-Preparer Regulation Legislation

Article Highlights

• PTIN Requirements 
• CPAs, EAs, and Attorneys 
• State Regulations 
• American Families Plan 
• Taxpayer Protection and Preparer Proficiency Act 

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.

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.

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.”

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 for a review. Uneducated preparers frequently overlook legitimate deductions and credits, especially with all of the new benefits available during the COVID pandemic.

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