By William R. Stromsem, CPA, J.D., Assistant Professor, George Washington University School of Business
AICPA advocated regulation of return preparers in the Tax Reform Act of 1976, which brought us most of today’s tax return preparer penalties. The advocacy was somewhat similar to AICPA’s advocacy today—AICPA sought legislation to regulate unlicensed return preparers to protect the public. Unfortunately, as the 1976 legislation was nearing enactment, the Government Accountability Office (GAO) published a study requested by the Joint Committee on Taxation concluding that, “commercial preparers are not more likely to make more or larger mistakes on the returns they prepare than are professional preparers.” Congress then made a minor change when it was too late to oppose, and CPAs, attorneys and enrolled agents were swept up in the new regulatory provisions, including the Section 6694(a) penalty for negligent or intentional disregard of IRS rules and regulations.
Today, AICPA is again advocating regulation of unlicensed return preparers as has been widely publicized and provisions are included in the Biden Administration’s proposed American Families Plan. The proposed legislation includes reinstatement of the Registered Tax Return Preparer Program, a limitation on the IRS’ authority to require a PTIN, the authority to revoke PTINs and a GAO study on exchange of information with state taxing authorities.
AICPA has suggested two additional provisions: a statement of congressional intent that the Registered Tax Return Preparer Program be focused on unlicensed preparers and a provision to restrict certain advertising by registered return preparers to avoid marketplace confusion. This last provision is difficult because the IRS will need buy-in from unlicensed preparers who are also lobbying this issue and because there are various truthful statements that the unlicensed preparer might make in advertising that would be difficult to regulate. For example, an unlicensed preparer might make the truthful statement that he/she is an IRS registered preparer, attempting to blur the distinction between registered return preparers and licensed return preparers.
A possible reason to be cautious in cheering on return preparer regulation is that Treasury is looking for revenue for the American Families Plan and a May 2021 Treasury Department explanation repeatedly refers to the large part of the tax gap that is attributable to high income taxpayers and corporations that use “sophisticated return preparers.” Couple this thinking with return preparer regulation that is in the same proposed legislation and there could be a problem.
Hopefully, AICPA is prepared to avoid 1976 déjà vu in return preparer legislation!