IRS Commissioner John Koskinen has asked the Senate Finance Committee to quickly enact a proposal in the president’s fiscal year 2015 budget giving the IRS authority to regulate tax preparers. Koskinen, speaking at an April 8 hearing before the Committee, said legislation would allow the IRS to go forward with mandatory testing and continuing education requirements following a key court decision in Loving v. IRS. Readers will recall that the Loving decision held that the IRS lacked the statutory authority to impose those requirements in the IRS tax preparer oversight program it had begun in 2009.
Panelists from the private sector, academia, and government oversight bodies mostly agreed with the call for IRS authority to regulate paid preparers.
Janis Salisbury, chair of the Oregon Board of Tax Practitioners, noted that her state has long filled the preparer regulation gap left by the IRS and Congress. For 40 years, Oregon has required anyone not already licensed as an attorney or CPA to obtain a state license to prepare tax returns, Salisbury explained. Licensees must pass a state administered exam on both federal and state tax law and take at least 30 hours per year of continuing education. As a result, the GAO has found Oregon’s tax returns to be 72 percent more accurate than comparable returns filed anywhere else, Salisbury said.
Salisbury’s written testimony noted that IRS’s Registered Tax Return Program invalidated by the Loving decision did not recognize Oregon’s efforts in this area. Oregon preparers who had already taken and passed Oregon’s test would nonetheless have been required to take the IRS minimum competency test, for no apparent good reason, according to Salisbury.
In her testimony, Salisbury supported the notion that the IRS be given the statutory authority to regulate tax return preparers and to require individuals to demonstrate competency in the preparation of tax returns and satisfy continuing education requirements. However, she also said that the legislations should provide that competency may be demonstrated by a written examination approved by a state board of accountancy or board of law examiners, a state entity such as the Oregon Board of Tax Practitioners, or by the IRS. The passage of an examination recognized by a state, such as Oregon, to show competency in tax return preparation must be considered to demonstrate tax competency for federal tax return preparers in order to recognize efforts that have been undertaken at the state level and to avoid duplicate and unnecessary testing.
NSA strongly believes that the IRS is clearly not the only entity capable of testing for minimum competency or even competency. Accordingly, we support Salisbury’s testimony.
During the hearing, the Government Accountability Office announced the release of a report, “Paid Tax Return Preparers: In a Limited Study, Preparers Made Significant Errors” (GAO-14-467T), finding that only two of 19 preparers surveyed in an undercover study calculated the correct refund amount—the remainder gave the undercover taxpayer anywhere from $52 less than the correct amount to $3,718 more. Preparer-filed returns showed an error rate of 60 percent, while self-prepared returns showed a 50 percent error rate, according to James R. McTigue Jr., GAO director of tax issues.
William Cobb, president and CEO of H&R Block, urged Congress to set minimum standards for tax return preparers and fraud prevention measures across all classes of return preparers. “Consumers need an objective way to know that the person they turn to for one of the biggest financial transactions of their year is competent and meets standards necessary to accurately prepare tax returns,” he said. Taxpayers polled nationally by H&R Block agree by a proportion of nine-to-one in favor of minimum training standards, he said.
Cobb also proposed that Congress close gaps in due diligence for the earned income tax credit. Those gaps, he said, allow the 40 percent of taxpayers who file on their own or with the help of software to claim the EITC and other refundable credits without the same documentation that enrolled preparers must submit to substantiate the taxpayer’s eligibility. “With an EITC improper payment rate persisting at 20 percent or higher, this is an obvious opportunity that can and should be seized immediately,” he said.
Also, Cobb said, the IRS should set standards for tax return preparation software to ferret out preparers who use the computer applications to sidestep documentation requirements for refundable credits.
John G. Ams
Executive Vice President
National Society of Accountants
Alexandria, VA