Senate Bill Seeks Tougher Regulation Of US Tax Preparation Industry

by Mike Godfrey, Tax-News.com, Washington

11 May 2005

New legislation has been introduced into the United States Senate that seeks more stringent regulation of the US tax preparation industry, including a new licensing regime and a system of penalties and fines to help protect taxpayers from unscrupulous tax preparers.

This bill, known as the Taxpayer Protection and Assistance Act of 2005, has been introduced by Sen. Jeff Bingaman, (D-N.M.) and was drafted with the support of the National Association of Enrolled Agents (NAEA). It has bipartisan sponsorship in the Senate and would regulate all tax preparers to the same standard that current licensed preparers are required to uphold.

Introducing the legislation, Bingaman explained that the bill would "ensure that when taxpayers hire someone to help with their tax returns they can be sure that person is competent and professional."

"Like all other tax professionals, this will require people who make a living preparing tax returns to pass a minimum competency exam and take brush-up courses each year to keep abreast of tax-law changes," said Bingaman.

The bill would require the Treasury Department to determine what standards individuals would have to meet to prepare tax returns commercially. The new rules also include a system of fines, penalties, and ultimately disbarment from practice for tax practitioners who are found guilty of transgressions.

A new category of licensed professional will be created, who will be able to prepare tax returns, but have a limited scope of additional powers to act on behalf of their clients. For example, they will not be able to use Powers of Attorney to act on their clients’ behalf. Instead, taxpayers will need to engage another professional should they have a problem that requires that level of help.

The Internal Revenue Service already has a complex code of ethics for the tax preparation industry which has been condensed into a single document known as Circular 230.

In December, the IRS and the Treasury Department made amendments to Circular 230 as part of an ongoing effort to improve ethical standards for tax professionals and to curb abusive tax avoidance transactions.

Circular 230 is applicable to attorneys, accountants and other tax professionals who practice before the IRS. The revisions to Circular 230 provide standards of practice for written advice that reflect current best practices and are intended to restore and maintain public confidence in tax professionals.

These revisions were designed to ensure that tax professionals do not provide inadequate advice, and increase transparency by requiring tax professionals to make disclosures if the advice is incomplete.

Recommended