Regulation Of Return Preparers Taxpayers And Tax-Books Pdf

REGULATION OF RETURN PREPARERS Taxpayers and Tax
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Most Serious Legislative Most Litigated, Case Advocacy Appendices. Problems Recommendations Issues, Taxpayer Advocate continues to recommend that the IRS establish minimum standards for return prepar. ers as an essential consumer protection measure Minimum standards would also improve professionalism. and reduce preparer facilitated noncompliance 7, While the question of regulatory authority is ultimately up to the courts to decide the IRS has the. responsibility to protect taxpayers by pursuing education and enforcement options that are undeniably. within its purview In the event that the courts decide that the IRS does not have authority to impose. testing and continuing education requirements on preparers the National Taxpayer Advocate urges the. IRS to implement the following six part strategy to protect taxpayers from preparer incompetence and. misconduct, 1 Offer unenrolled preparers the opportunity to earn a voluntary examination and continuing. education certificate, 2 Restrict the ability of unenrolled preparers to represent taxpayers in audits of returns they pre.
pared unless they earn the voluntary examination and continuing education certificate. 3 Restrict the ability to name an unenrolled preparer as a Third Party Designee on Form 1040 U S. Individual Income Tax Return, 4 Mount a consumer protection campaign to educate taxpayers about the need to select competent. preparers who can demonstrate competency, 5 Develop a research driven Servicewide preparer compliance strategy similar in nature to the. Earned Income Tax Credit EITC preparer compliance strategy. 6 Recommend that Congress revise 31 U S C 330 a 2 to clarify that the IRS has the authority. to regulate unenrolled preparers, Tax Year 2011 Returns Filed by Preparer Type. Not Regulated 42 154 527 of returns, by a preparer. Certified Public Accountant Enrolled Agent, 22 473 361 8 916 953.
State Attorney Certified Enrolled Enrolled, Data is for returns filed through March 2013 Regulated 889 499 Public Actuary Retirement. Preparer Acceptance 30 963 Plan Agent, IRS records show about one million returns as paid preparer 3 347 118 Agent 5 357. returns that did not have a Preparer Tax Identification Number 270 776. PTIN match in the Return Preparers and Providers Database. 7 By statute the IRS cannot require attorneys and accountants to pass the competency exam or satisfy continuing education requirements to. prepare returns 5 U S C 500 b c grant attorneys and certified public accountants respectively the authority to represent clients before. federal agencies upon submitting a written declaration stating that he or she is currently qualified. 62 Most Serious Problems Regulation of Return Preparers. Most Litigated Legislative Most Serious, Appendices Case Advocacy. Issues Recommendations Problems, ANALYSIS OF PROBLEM. Background, The National Taxpayer Advocate Has Long Proposed a Program to Regulate Return Preparers.
Since 2002 the National Taxpayer Advocate has advocated for a system to regulate return preparers Her. proposals included a program to register test and certify unenrolled preparers as well as increased pre. parer penalties and improved due diligence requirements The National Taxpayer Advocate has also rec. ommended that the IRS mount a comprehensive education campaign to inform taxpayers how to choose. a competent preparer and remind them to obtain a copy of the tax return with the preparer s signature 8. The National Taxpayer Advocate s recommendations to regulate the return preparer profession received. widespread support Most organizations representing established preparers supported her call for mini. mum industry standards For example in 2005 the House Ways and Means Subcommittee on Oversight. held a hearing at which representatives of five outside organizations testified in support of regulating re. turn preparers 9 Preparer oversight has received similarly broad support from members of Congress The. Senate Finance Committee has twice approved legislation to regulate federal tax return preparers once. under Democratic and once under Republican control 10 The full Senate also once approved similar. legislation 11 However the House of Representatives never took up companion measures More recently. several bills included proposals to regulate preparers S 1219 the Taxpayer Protection and Assistance. Act of 2007 H R 5716 the Taxpayer Bill of Rights Act of 2008 and S 3215 the Taxpayer Bill of Rights. of 2010 12 All of these bills would have required preparers to have the knowledge and skills to prepare. accurate returns 13, IRS Implements Return Preparer Strategy. In January 2010 the IRS published a study of federal tax return preparers that in most important aspects. reflected the proposals made by the National Taxpayer Advocate 14 As a result of the study the IRS issued. regulations requiring all preparers to register with the IRS by obtaining a preparer tax identification num. ber PTIN 15 The IRS also required certain preparers to meet testing and continuing education stan. dards 16 Implementation began with the 2011 filing season when the IRS required paid return preparers. to obtain PTINs 17 The IRS launched the registered tax return preparer competency test in November. 8 National Taxpayer Advocate 2009 Annual Report to Congress 41 69 National Taxpayer Advocate 2008 Annual Report to Congress 503 512. National Taxpayer Advocate 2006 Annual Report to Congress 197 221 National Taxpayer Advocate 2005 Annual Report to Congress 223 237. National Taxpayer Advocate 2004 Annual Report to Congress 67 88 National Taxpayer Advocate 2003 Annual Report to Congress 270 301. National Taxpayer Advocate 2002 Annual Report to Congress 216 230 Fraud in Income Tax Return Preparation Hearing Before the Subcomm on. Oversight of the H Comm on Ways and Means 109th Cong 2005 statement of Nina E Olson National Taxpayer Advocate. 9 The organizations were the American Bar Association the American Institute of Certified Public Accountants the National Association of Enrolled. Agents the National Society of Accountants and the National Association of Tax Professionals See Fraud in Income Tax Return Preparation. Hearing Before the Subcomm on Oversight of the H Comm on Ways Means 109th Cong 2005. 10 H R 1528 incorporating S 882 108th Cong S 1321 incorporating S 832 109th Cong. 11 H R 1528 incorporating S 882 108th Cong, 12 S 1219 4 110th Cong 2007 H R 5716 4 110th Cong 2008 S 3215 202 111th Cong 2010. 13 See also GAO GAO 08 781 Oregon s Regulatory Regime May Lead to Improved Federal Tax Return Accuracy and Provides a Possible Model for. National Regulation Aug 15 2008, 14 IRS Publication 4832 Return Preparer Review Dec 2009. 15 Treas Reg 1 6109 2 d, 16 31 C F R 10 4 c testing and 10 6 e continuing education. 17 See IRS News Release IR 2010 106 IRS Begins Notifying Tax Return Preparers on PTIN Renewals Oct 25 2010. Taxpayer Advocate Service 2013 Annual Report to Congress Volume One 63. Most Serious Legislative Most Litigated, Case Advocacy Appendices.
Problems Recommendations Issues, 2011 with a deadline to take the test by December 31 2013 The continuing education requirement. began during the 2012 calendar year 18, The District Court Enjoined IRS Preparer Initiatives. In January 2013 after the new return preparer program was substantially in place a U S district court. judge in Loving v Internal Revenue Service enjoined the IRS from enforcing the testing and continuing. education requirements The outcome of Loving rests on the reviewing court s application of the Chevron. analysis 19, Under Chevron the court must first ask if Congress s intent in enacting the statute giving rise to the. challenged government action here the regulation is clear If so the court must give full effect to. this expressed intent of Congress Pursuant to 31 U S C 330 a 1 Congress granted the Secretary of. the Treasury authority to regulate the practice of representatives of persons before the Department of the. Treasury The Chevron analysis turns on how practice of representatives is defined in the context of tax. return preparation, In Loving the District Court reasoned that the statute equates practice of representatives to the pre. sentation of a case before the IRS and held that the mere preparation of a return for submission to the. IRS does not amount to practicing before the IRS 20 Thus the District Court held that the statute. unambiguously limits the IRS s authority to regulate the practice of representatives Therefore under. a Chevron analysis 31 U S C 330 a 1 does not authorize the Secretary of Treasury to regulate the. practice of representatives who prepare federal tax returns on behalf of other persons for filing with and. review by the IRS 21 The Justice Department has appealed the District Court s decision 22. The District Court s Decision in Loving is Based on an Outdated Understanding. The National Taxpayer Advocate believes that the District Court decision in Loving is based on an out. dated understanding of the return preparation function 23 For purposes of determining what constitutes. practice before the IRS the court excluded return preparation because it reasoned at the time of filing. there is no dispute before the IRS and thus no case to present as required by 31 U S C 330 a 2. 18 IRS News Release IR 2011 111 IRS Moves to Next Phase of Return Preparer Initiative New Competency Test to Begin Nov 22 2011. 19 Chevron U S A Inc v Natural Res Def Council Inc 467 U S 837 842 43 1984 If the intent of Congress is clear that is the end of the. matter for the court as well as the agency must give effect to the unambiguously expressed intent of Congress step one If however the. reviewing court determines that the statute is ambiguous or silent regarding Congress s intent the court must ask whether the agency position is. based on a permissible construction of the statute step two. 20 Loving v IRS 917 F Supp 2d 67 D D C Jan 18 2013 The government filed a motion to suspend the injunction pending appeal The U S. District Court for the District of Columbia denied the motion but then modified the terms of the injunction to make clear that the IRS is not. required to suspend the preparer tax identification number PTIN program and not required to shut down all of its testing and continuing centers. See Loving 111 A F T R 2d RIA 702 D D C Feb 1 2013 On February 25 2013 the government filed a motion for a stay pending appeal On. March 27 2013 the U S District Court for the District of Columbia denied the motion for stay Loving 111 A F T R 2d RIA 1384 D D C Mar 27. 2013 Oral argument was held before the Court of Appeals for the D C Circuit on September 24 2013. 21 Loving v IRS 917 F Supp 2d 67 D D C Jan 18 2013. 22 See Government Files Brief in D C Circuit Court in Return Preparer Oversight Case 2013 TNT 62 20 Tax Analysts Tax Notes Today Apr 3 2013. Loving v IRS No 1 12 cv 00385 D D C 2013 USCA Case No 13 5061 The oral arguments were held at the D C Circuit on September 24. 2013 See Matthew R Madara Appeals Judges Turn Skeptical Eye Toward IRS Return Preparer Requirements Tax Analysts Tax Notes Today Sept. 23 For a more detailed discussion of the National Taxpayer Advocate s views see Nina E Olson More Than a Mere Preparer Loving and Return. Preparation 2013 TNT 92 31 Tax Analysts Tax Notes Today May 13 2013. 64 Most Serious Problems Regulation of Return Preparers. Most Litigated Legislative Most Serious, Appendices Case Advocacy.
Issues Recommendations Problems, D 24 However the filing of a tax return is not merely a ministerial act The taxpayer is taking a posi. tion before the federal government regarding items of income expenses and eligibility for government. benefits that are administered by the IRS A preparer is not merely the taxpayer s scrivener Taxpayers pay. preparers for their knowledge and skills because they are uncomfortable navigating the complexity of the. tax laws by themselves 25, Tax return filing is almost always presenting a case and return preparers are representatives before the. IRS when they advise and assist taxpayers in making their claims to the IRS and Treasury 26 More than 80. percent of individual income tax returns are actually claims for refund under IRC 6402 and nearly 80. percent of those refund returns are prepared by preparers 27. In addition IRC 6695 g imposes due diligence requirements for paid preparers. of individual income tax returns claiming the EITC and a penalty of 500 for each. The case for IRS oversight failure to comply with the requirements The regulations thereunder require the. preparer to complete and submit Form 8867 Paid Preparer s Earned Income Credit. over the return preparation, Checklist which includes a series of questions to determine the taxpayer s eligibil. industry is clear ity as well as the preparer s affirmative acknowledgement that he or she complied. with the due diligence requirements The preparer must also complete an EITC. worksheet and comply with recordkeeping and knowledge requirements 28. The due diligence requirements result in the preparer anticipating and preparing for an IRS challenge to. the taxpayer s eligibility for EITC by answering certain questions verifying to the IRS that the preparer. asked certain questions and retained documentation probative of eligibility In TY 2012 over 76 percent. of preparers who prepared returns claiming EITC were unenrolled 29 The chart below provides further. information on EITC claims and the use of preparers in tax years 2010 through 2012. largest portion coming from the individual income tax 1 For tax year TY 2011 taxpayers filed about 142 million 1040 series individual returns 2 with nearly 79 million taxpayers using paid preparers 3 More than half over 42 million of these returns were prepared by preparers who are unregulated by the IRS 4

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