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House and Senate tax writers move bills on IRS administration and identity theft

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Tax Hot Topics: IRS administration and identity theftThe tax writing committees in both chambers have advanced bills that would address various IRS tax administrative rules and combat tax-related identity theft and fraud.

The Senate Finance Committee passed two bills, easily approving legislation that would make a handful of changes meant to combat fraud and identity theft involving tax information and false tax returns. The Taxpayer Protection Act of 2016 was slightly more contentious. It included various tax administration changes involving areas such as e-filing, levies, installment agreement fees, innocent spouse relief and whistle-blower information exchange. It passed by voice vote only, after the committee rejected a Democratic amendment on a party-line vote that would have restored the IRS’s ability to regulate unregistered 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 education 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 D.C. Circuit upheld the decision striking down the regulations. Since then, there have been several legislative attempts to give the IRS authority to restart the program. The Senate Finance Committee scuttled the markup of a bill providing the IRS with expansive authority to regulate return preparers because it proved too controversial.

An amendment introduced by Senate Finance Committee ranking minority member Ron Wyden, D-Ore., was narrower in that it would have authorized the IRS to require only a minimum standard for unregistered preparers without having broad general authority over regulating preparers. Senate Majority Leader Orrin Hatch, R-Utah, said he generally supported the effort, but that Republicans were concerned about the breadth of Wyden’s amendment. It was defeated narrowly, but the issue is likely to resurface.

On the House side, the Ways and Means Committee approved three bills that would:
  • Require the IRS to notify taxpayers whose identities have been stolen (H.R. 3832)
  • Bar the IRS from requiring certain tax-exempt organizations to divulge the names of their donors (H.R. 5053)
  • Allow the IRS to share taxpayer information on missing children with local authorities (H.R. 3209)
Although little tax legislation is likely to be enacted this year, the House and the Senate may reach agreement on some of their IRS administration and anti-fraud provisions.

For more information, please contact Dustin Stamper in the Washington National Tax Office.

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