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Refund advances, tax preparers target of new oversight bill

Tax cheating money crossed fingers behind back

Unscrupulous tax return preparers once again made the Internal Revenue Service's annual Dirty Dozen scam list.

That's not a surprise. The IRS and reputable tax community members are constantly battling shady tax pros and the schemes they use to lure taxpayers to use their so-called services.

While the tax world is divided in how to best combat these crooks and scams, the IRS has long argued for tighter tax professional regulation.

President Joe Biden also has expressed support for more tax pro oversight.

And this month, members of Congress introduced the latest bicameral effort to protect taxpayers from dishonest tax preparers.

Old problem, new legislation: Sen. Cory Booker of New Jersey and Rep. Suzanne Bonamici of Oregon, both Democrats, have introduced companion versions of The Tax Refund Protection Act (TRPA) in their respective chambers just after we cleared this month's Tax Day.

Their bills, which call for more tax preparer supervision, were dropped into the current legislative hopper on April 19. However, they are not new.

Booker and Bonamici introduced similar measures bearing the same name on April 14, 2015, but they never came up for a vote in either chamber.

This newest version of TRPA officially is H.R. 2702 in the House and S. 1209 in the Senate. The proposals would update current rules covering tax professionals, such as tax attorneys and accountants, so that the U.S. Treasury could license and regulate for-profit tax preparers.

TRPA also would give Treasury and the IRS authority to collect fees sufficient to support the cost of the licensing program, as well as to institute penalties for improper conduct.

Refund advance rules, too: In addition, the bill would give Treasury the authority to regulate Refund Anticipation Checks (RACs) through disclosure requirements.

The lawmakers noted in a fact sheet on their bill that many taxpayers do not realize that RACs generally do not get them their tax refund money any sooner. "There is no speed advantage to a RAC," according to Booker and Bonamici, with taxpayers typically receiving their refund money on the same day, regardless of whether it arrives as a direct deposit from the IRS or as a refund check from their preparer.

The TRPA would require paid preparers to disclose this timing factor to taxpayers, as well as the following pieces of tax prep, filing, and refund information.

  • How much the preparer charges for preparing and filing a tax return.
  • Where to find the amount of time that a taxpayer can expect to receive a refund.
  • The difference in time a taxpayer would receive refund directly from IRS and from the preparer in the form of a RAC.
  • A RAC is not necessary to receive a tax refund.

Finally, the bill addresses the security of information tax preparers collect. TRPA would clarify that the IRS may seek both civil and criminal penalties when tax return preparers improperly disclose taxpayers' sensitive information.

Predatory tax tactics targeted: "Navigating tax season is complicated enough without having to worry about a refund being taken by someone who is unqualified or predatory," said Bonamici. "Our constituents should be able to trust that tax preparers are acting in their customer's best interest and will help them receive the best possible refund."

"Bad actors interfering with the financial security of working families must be held accountable," added Booker. "Tax refunds provide a crucial financial boost to hardworking American families, sustaining them for months after Tax Day and oftentimes serving as the largest cash influx of the year."

In addition to Booker and Bonamici, other TRPA cosponsors include Reps. André Carson (D-Indiana), Jahana Hayes (D-Connecticut), and Eleanor Holmes Norton (D-Washington, D.C.).

Beyond Capitol Hill, the legislation has been endorsed by Americans for Tax Fairness, Consumer Action, the Economic Policy Institute, and Prosperity Now.

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