Senate Finance Committee scraps bill giving IRS authority to regulate return preparers

Tax Hot Topics: IRS regulation of return preparersThe Senate Finance Committee last week abandoned plans to mark up legislation that would accelerate information return deadlines, change preparer standards and give the IRS authority to regulate return preparers. The bill was designed to combat stolen identity refund fraud, but included a variety of IRS-related changes, including provisions that would do following:

  • Grant the IRS explicit authority to regulate tax preparers
  • Require electronic information returns such as Form W-2 and Form 1099 to be filed with the IRS with paper returns on Feb. 28 instead of the extended March 31 deadline
  • Lower the thresholds for when electronic returns are required
  • Require paper returns by return preparers to include scannable codes
  • Increase preparer penalties for disclosures of taxpayer information

The Finance Committee canceled the mark-up after receiving significant pushback on the provision that would provide the IRS with more authority to regulate tax return preparers. The IRS issued regulations in 2011 that would have required preparers to register with the IRS and satisfy competency testing and continuing education requirements. Enrolled agents, lawyers and accountants were generally exempt from the IRS testing and requirements as long as they fulfilled the requirement for their own professional certifications, but the rules would have regulated unregistered preparers for the first time.

Preparers successfully challenged the regulations in district court in Loving v. IRS (No. 13-5061), and the Court of Appeals for the District of Columbia Circuit upheld the decision striking down the regulations. The Finance Committee bill essentially would have reversed Loving by granting the IRS statutory authority to regulate return preparers.

The IRS, however, remains unpopular with many lawmakers after it admitted it targeted certain political organizations applying for tax-exempt status. The Finance Committee has not announced any plans to change the bill and reschedule the mark-up, but some of the less controversial provisions could always be considered as part of other legislation in the future.

Dustin Stamper
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