After setbacks in the courts, the Obama administration this month
asked Congress to pass a law that would specifically empower the
Internal Revenue Service to regulate preparers, from sector leader
H&R Block Inc to thousands of mom-and-pop shops.
The IRS had argued for years it did not need legislation to do this,
but small-government activists recently prevailed in court in their
effort to block the tax agency's attempts on its own to impose new
regulations on up to 700,000 tax preparers.
Concurring with the activists, the U.S. Court of Appeals for the
District of Columbia ruled last month that Congress never gave the
IRS the power to impose test-taking and continuing education
requirements on tax-return preparers.
The IRS now wants Congress to act, but there is little prospect that
it will move quickly on that request, said Floyd Williams, the
former IRS chief of legislative affairs. He is now a lawyer at a
lobbying firm. "I don't think it's a go. I don't look for Congress
to jump on that," he said.
The IRS request may have some traction in the Senate, where Democrat
Ron Wyden, who chairs a committee that oversees the agency, has said
he is "committed to focusing the committee on taking necessary
actions to ensure robust taxpayer protection."
But in the Republican-controlled House of Representatives, the issue
is not a top talking point among members of the tax-writing Ways and
Means Committee, said a Republican staffer who asked not to be
A spokeswoman for Ways and Means Committee Chairman Dave Camp, a
Republican, said the IRS's request is under review.
Jeff Trinca, a lobbyist who represents enrolled agent tax preparers
already licensed by the IRS, said, "Republicans are cautious ...
There isn't a lot of grassroots support" for the IRS's proposed
crackdown on the tax preparer industry.
NAVIGATING THE MAZE
The complex and confusing U.S. tax code each year drives millions of
Americans to seek help with completing their tax returns, which
supports a $9.4-billion industry.
About a third of the market is controlled by H&R Block, by far the
industry's biggest firm, and three other sizable companies. The
remaining two-thirds is divided among licensed and unlicensed
preparers, many of them mom-and-pop operations.
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Licensed preparers, such as enrolled agents, accountants and
lawyers, would not have been subject to the IRS's proposed
regulations, which were aimed mainly at unlicensed, unregulated tax
preparers. That is the part of the market where the IRS sees the
most mistakes and deception in tax returns.
Incompetent and unethical tax-return preparers "annually cost the
taxpaying public billions of dollars," the Justice Department said
in a court filing last year.
The department said in February it got permanent injunctions against
more than 60 tax preparers in the prior 12 months.
Former IRS Commissioner Doug Shulman launched the agency's attempted
crackdown in 2009, aiming to shrink the $450 billion "tax gap"
between taxes owed to the IRS, but not paid.
Without federal action, regulation at the state level could help
address the tax preparer problem, Williams said.
California is one of four states that regulate preparers. There tax
preparers must pass a test and complete 20 hours of continuing
education each year. But Cynthia Leachmoore, an enrolled agent in
Soquel, California, said, "There's not enough consequence for
someone who makes a bad mistake."
New York has moved recently to regulate preparers more closely,
prompting complaints of a patchwork of state rules.
"My greatest fear is that states will each take regulations up on
their own so that I would be unable to prepare a multistate
return," said Bill Nemeth, an enrolled agent in Georgia.
(Editing by Kevin Drawbaugh and Andrew Hay)
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