by Linda Beale
Senate Finance Committee cuts tax return preparer regulation
As most tax practitioners realize, many people who hold themselves out as “tax return preparers” actually know nothing about the tax laws and may even assist their clients in cheating on their taxes by inventing home offices, travel-away-from-home expenses, or other fictional deductions.
The U.S. Department of Treasury sought to deal with this by amending regulations governing “practice before the IRS” in Circular 230 to require those who prepare returns for payment to acquire an identification number and pass certification requirements. The ABA Tax Section has been supportive of these requirements, because it is clear that both individual taxpayers whose returns are not accurate and the U.S. government suffer when scams are perpetrated by shady tax return preparers.
But some of those regulated under Circular 230 objected and brought suit. They got the D.C. Court of Appeals, in Loving, to hold that the longstanding provision that permits the Treasury to regulate tax practitioners that ‘practice before the IRS’ covered only litigation-like controversies. This is, in my view, patently absurd.
If anything constitutes practicing before the IRS, the preparation of taxpayers’ tax returns must. It is the core interaction of a taxpayer with the IRS/Treasury, and is something that we must do. If an ‘adviser’ prepares the return for us, that adviser is representing us to the government. That clearly should constitute “practice before the IRS.”
So once the Loving court ruled against the government on its ability to regulate these maverick ‘tax return preparers’ who do not have to know or follow the law, many tax practitioners and others pushed Congress for legislation to permit the Treasury to regulate tax return preparers.
The ABA Tax Section wanted the Big ABA (the American Bar Association that includes all of the various “sections”) to support a resolution urging Congress to pass legislation allowing the regulation of tax return preparers. But the Big ABA was not willing to even consider the resolution. That was a revealing moment for me, since it showed that attorneys in the leadership of the Big ABA are not really serious about wanting what is best for individuals that we serve or for the good of the country.
Nonetheless, there has been a push to enact legislation to permit regulation. And the Senate had a bill before it that included a provision authorizing regulation. But the AICPA (the national organization for certified public accountants) apparently lobbied heavily against the provision. So guess what. Congress–that dysfunctional branch of the Federal government that seems to think that holding hearings about scam videos and shouting at the former Secretary of State about Benghazi is reasonable expenditure of time–is showing itself dysfunctional again. The Senate Finance Committee, which will hold a markup of the bill this Wednesday, will not include the provision for regulation of tax return preparers.
Furthermore, the Senate Finance Committee continues to harass the IRS with more provisions demanding information on IRS audits. See JCX-30-16 Note that this will almost always work to the advantage of cheating taxpayers (especially the rich) and the disadvantage of the government, as IRS employee morale deteriorates and IRS employees fear that their jobs will be on the line if they are aggressive in pursuing likely tax cheaters. See JCX-30-16 (chairman’s mark for “The Taxpayer Protection Act of 2016”).
This is one more bad example of the influence money and profit-making have over congressional deliberation and the poor policy decisions that result.
cross posted with ataxingmatter