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January 26, 2016
Return Preparer Bill Stalled Despite AICPA Dropping Objections
by Luca Gattoni-Celli

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A Senate Finance Committee tax administration bill has been stalled for months by Republican objections to a provision authorizing the IRS to regulate tax return preparers, despite the apparent acquiescence to the bill of the American Institute of Certified Public Accountants, Senate aides say.

Tax observers widely suspected that the AICPA influenced the Finance Committee's postponement of its markup scheduled for September 16, 2015, of "a bill to prevent identity theft and tax refund fraud," as the Joint Committee on Taxation called it.

However, Senate aides told Tax Analysts that the actual chain of events was less straightforward.

Republican taxwriters already deeply distrusted the IRS and did not want to give it new regulatory authority, aides said, some pointing to lingering fallout from the exempt organization screening controversy. The AICPA drew members' attention to that issue in the bill, aides said.

The proposal to grant the IRS authority to regulate preparers "was probably the principal concern" of some senators about the bill, Finance Committee member John Thune, R-S.D., said September 16. "I think more of it, the whole issue, was whether or not to give the IRS more authority -- more power, more people, more resources, all that."

The AICPA supported, at least officially, the IRS's registered tax return preparer program, which was struck down by Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014). In that case, the D.C. Circuit upheld a lower court decision invalidating IRS regulations imposing professional standards on tax return preparers on the grounds that the regs lacked proper statutory authorization.

The IRS responded to Loving by creating the voluntary annual filing season program, which the AICPA is challenging in court. In an October 2015 release on that litigation, the AICPA called the voluntary program "an overbroad and unlawful exercise of government power" and an IRS effort to circumvent Loving.

One aide called the AICPA a material factor in the delay of the Finance Committee's markup, through lobbying visits to member offices and a September 15 letter in which the group told committee leaders: "We have concerns regarding the provision that grants the Department of the Treasury and [IRS] broad authority to regulate paid tax return preparers."

However, a second aide argued that the group's specific objections to the bill -- over who would be assigned preparer tax identification numbers, and the possibility that nonprofessional preparers would advertise as IRS-endorsed -- did not contribute to the GOP members' opposition.

And after negotiating revisions with Finance Committee staff that addressed those two concerns, the AICPA privately dropped its opposition to the bill, aides said. But they said the bill remains stalled by Republican concerns about empowering the IRS.

An AICPA spokesperson declined to comment.


Two Requests Granted

In the September 15 letter to Finance Committee leadership, the AICPA wrote that lawmakers should, instead of granting the IRS broad regulatory authority, approve "language that grants the IRS the specific authority necessary to address the concerns of incompetent and fraudulent, currently-unenrolled tax return preparers."

"At a minimum, we suggest you consider specific recommendations to (1) limit the IRS's authority to require a preparer tax identification number (PTIN) and (2) protect the public from marketplace confusion," the AICPA wrote.

"Marketplace confusion" is the term the AICPA used to describe consumers' potential inability to distinguish between professional practitioners like CPAs, and preparers who simply fulfilled basic IRS registration and professional standard requirements.

The AICPA also expressed concern that legitimate, formally qualified tax practitioners such as its members would be unduly burdened under the regime resulting from the Senate bill.

The AICPA asked that the IRS be allowed to assign PTINs only to individuals signing a return or claiming a refund, or to individuals involved in the preparation of a return but not supervised by a professionally certified practitioner such as a CPA, attorney, or enrolled agent.

That change would exempt non-signers of a return, such as interns in an accounting firm's tax practice, from being required to obtain a PTIN if while helping prepare a return they were supervised by a professionally certified practitioner who then signed the same return, the AICPA wrote.

The AICPA also said that currently unenrolled PTIN holders using any paid advertising to represent themselves as a PTIN holder or somehow certified by the IRS should be required to explain the different types of preparers and that the IRS does not endorse any particular tax preparer.


Other Provisions Advance Piecemeal

With the AICPA appeased, Republican committee staff have tried to win over skeptical GOP members, aides said. A recent pitch proposed giving the Treasury Department, as opposed to the IRS, the authority to regulate preparers, the second aide said, expressing skepticism that the provision's opponents would find this line of persuasion compelling.

Should opponents remain unconvinced, the tax administration measure's other provisions -- widely palatable changes designed to combat identity theft and fraud -- may advance independently. Some were transplanted from the derailed chair's mark to the permanent tax extenders deal struck in late 2015.

Those enacted changes include an earlier, January 31, filing deadline for forms W-2 and W-3, and any returns or statements required to report non-employee compensation, presumably including Form 1099-MISC, "Miscellaneous Income."

Follow Luca Gattoni-Celli (@TheGattoniCelli) on Twitter for real-time updates.

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