Don't Mess With Taxes

The annual tax filing season is here, with the Internal Revenue Service preparing to accept 2014 tax year returns on Jan. 20.

Many of those returns submitted in the coming weeks will be the work of paid tax professionals. More than half of U.S. taxpayers hire someone to help fill out and file their 1040s.

That number could increase this year, as millions of taxpayers will find themselves having to answer Affordable Care Act questions in order to figure out what they owe, or will get back, from Uncle Sam.

The new Obamacare tax wrinkles are just one reason that many believe that all tax professionals should meet certain standards.

Supporters of competency testing include:

• the IRS, which this year has instituted a voluntary education and testing system and is bugging tax preparers who've been making return mistakes,
• the National Taxpayer Advocate, who has called for such regulations in many of her annual reports to Congress,
• the American taxpaying public, 93 percent of whom told the IRS Oversight Board last year that measurable tax preparer knowledge is important, and
• two members of the Senate Finance Committee, who have introduced a bill to authorize official IRS oversight of tax preparers.

Getting regulations in writing: Democratic Sens. Ron Wyden of Oregon and Ben Cardin of Maryland last week introduced S. 137, the Taxpayer Protection and Preparer Proficiency Act of 2015.

Both men are members of the Senate Finance Committee, with Wyden briefly holding the panel's gavel before the midterm election turned control over to the GOP.

Both men also represent states that regulate tax preparers who practice in those jurisdictions. In addition to Oregon and Maryland, California and New York have state tax preparer regulations.

IRS oversight, from courtrooms to Capitol Hill: An earlier attempt by the IRS to regulate paid tax preparers died in 2013 in the federal courts after a trio of independent tax preparers challenged the plan. Two courts ruled that the IRS has no statutory authority to regulate preparers.

The agency this filing season instituted the Annual Filing Season Program (AFSP), a voluntary system of tax classes and follow-up exams, completion of which would reward preparers by listing them in an online public directory.

However, the IRS made no secret that it would like to have official standing from Congress to mandate continuing education and testing of uncredentialed paid tax return preparers.

That's what Wyden and Cardin want, too.

"Our tax code is complicated. To protect taxpayers from incompetent or unscrupulous preparers, the IRS needs adequate tools to ensure that preparers are qualified and held accountable," said Cardin in the joint statement he and Wyden released upon introduction of their bill. "I'm pleased to join in support of this legislation, which restores meaningful and much-needed standards and oversight in the paid preparer industry."

"It's bad enough that taxpayers have to navigate their way through an overly complex tax code, but worse that many also unknowingly rely on fraudulent or incompetent tax preparers to help with their returns," Wyden, who made his support of tax preparer competency standards clear when he chaired a hearing on the topic last April.

The bill, Wyden added, will ensure that tax preparers are held to clear and enforceable standards.

It will do that if it's passed. The new chairman of the Finance Committee, Sen. Orrin Hatch (R-Utah), is not as enthusiastic about such regulation as are his colleagues across the aisle. No hearings have been scheduled on S. 127.

Neither is there a companion bill on the House side, yet. But one likely will soon be dropped in the hopper.

A similar bill, the Taxpayer Protection and Preparer Fraud Prevention Act of 2013, was introduced in the House in the previous Congressional session, but it never went anywhere.

We'll see if proponents of tax preparer regulations are more successful in the 114th Congress.

You also might find these items of interest:

• Time to pick the proper tax pro
• Top taxpayer problem: Continued tax code complexity
• Most taxpayers support tax preparer competency standards