Senate Tax Writers Back Laws To Regulate Tax Preparation Industry

by Mike Godfrey, Tax-News.com, Washington

11 May 2006

Tax preparation firms have been asked by senior Senate tax writers to help with the drafting of new legislation that will impose regulations on the industry to protect taxpayers from bad tax advice and rogue preparers.

In a letter sent to major firms last week, Charles Grassley, chairman of the Senate Finance Committee, and Max Baucus, the committee's ranking Democrat, requested information on business models, training and compensation of tax preparers, quality control and other issues.

The Senators are seeking to introduce a framework of minimum legal standards for the largely unregulated tax preparation industry in order to ensure that taxpayers have greater legal protection, pointing to a Government Accountability Office investigation which uncovered "dishonesty, inaccurate information and poor service given to taxpayers by paid tax preparers."

"Getting this information will help us refine our pending legislation to ensure that when taxpayers use a preparer, they can trust that preparer to be a knowledgeable professional who will do the right thing and put the taxpayers’ interest first," said Grassley.

“Paid preparers are the links between 60 percent of America’s taxpayers and the IRS,” noted Baucus.

“When taxpayers put their faith, trust and money into the hands of paid preparers, they have a right to expect that the preparers will comply with the law. We take very seriously the problems uncovered by GAO, and we intend to fix them," he added.

Grassley has also taken up the issue of the 'Free File' program, an alliance between the IRS and tax preparation firms designed to encourage more e-filing, after recent figures showed a marked decline in the number of taxpayers using the service.

After studying the system, Grassley said that his staff found a series of hidden costs and restrictions in the Free File program. These included: restrictions on the types of income and deductions taxpayers may claim using their free online tax preparation services; additional charges and fees for services such as state return preparation and filing, resetting passwords, printing and mailing services and professional tax return review; and hidden fees associated with anticipation loans and tax refund payments.

Grassley says the lack of minimum-training standards for tax preparers, and the poor electronic filing options, provide new momentum to consider and possibly revise the Taxpayer Protection and Assistance Act of 2005.

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