Tax Preparer Registration May Not Be the Answer

Internal Revenue Commissioner Doug Shulman announced on June 4, 2009, in congressional testimony before the House Ways and Means Oversight Committee that the IRS plans to make recommendations by the end of the year to ensure that tax preparers adhere to high ethical standards. At the hearing on the tax filing season and 2010 IRS budget, Shulman said the IRS has to ensure “all preparers are ethical, provide good service and are qualified.”

The announcement follows IRS National Taxpayer Advocate Nina E. Olson’s recommendations to Congress over the past several years that a registration program needs to be created for unlicensed tax return preparers.

The AICPA strongly supports the implementation of high professional standards for tax practitioners, including the AICPA Code of Professional Conduct and the Institute’s enforceable Statements on Standards for Tax Services. However, the profession’s leadership is not convinced that congressional or regulatory agency proposals calling for the regulation of unlicensed tax practitioners will accomplish the stated objectives of reducing errors.

“Tax preparer registration is not the answer to ensuring tax returns are submitted correctly,” stated Barry Melancon, AICPA President and CEO. “The IRS should first examine the common errors and work to correct those before imposing redundant registration regulations. Congress and the IRS should review the current electronic return originator application process which significantly overlaps and may even duplicate any registration process.”

The IRS announcement did not offer any specifics on what the proposals may entail. AICPA and congressional staff and IRS officials have met to discuss tax preparer registration in the past and will continue to do so. The IRS indicated it will use an open and inclusive discussion process – one that Commissioner Shulman described as “transparent.” He emphasized that the IRS wants to “hear from the broadest possible range of stakeholders.”

"We have been monitoring this issue for several years and the AICPA will work closely with IRS Commissioner Shulman and his staff as they move forward,” said Melancon. “Clearly, we support the two goals of increasing compliance and maintaining high ethical standards. We have publicly expressed concerns about previous attempts to regulate tax preparers and we hope the IRS will avoid the pitfalls of those past efforts."

Additionally at the hearing, Representative Xavier Becerra (D-Calif.) said he plans to reintroduce his bill regulating unlicensed preparers. Past legislation to regulate preparers has generally been proposed by members of Congress as a partial response to high error rates associated with the Earned Income Tax Credit (EITC) and consumer protection concerns related to refund anticipation loans (RALs).

The IRS, however, has authority to regulate tax return preparers through the penalty authority under current law. The Internal Revenue Code permits the Service to assess (among others) penalties for the understatement of a taxpayer’s liability (section 6694); the failure to furnish a copy or to sign the return (section 6695); the promotion of abusive tax shelters and gross valuation overstatements (section 6700); the aiding and abetting of the understatement of tax liability (section 6701); and actions to enjoin certain conduct by preparers or promoters (sections 7407 and 7408).

The AICPA believes the IRS already has the tools necessary to ensure reduced-error tax returns and proper registration methods and should resist overburdening tax preparers with redundant and potentially costly regulation requirements.