IRS advisory committee recommends regulating tax preparers

An influential advisory committee to the Internal Revenue Service is asking Congress to regulate noncredentialed tax preparers and boost funding for the IRS and the National Taxpayer Advocate.

The Internal Revenue Service Electronic Tax Administration Advisory Committee released its annual report Wednesday, which included those three recommendations to Congress, along with nine other recommendations to the IRS.

The recommendations to the IRS include enabling application programming interface access to taxpayer information, removing barriers to electronic filing by developing an alternative to the current self-select PIN, as well as promoting greater information sharing between the IRS, states and industry partners. 

The recommendation to Congress on regulating noncredentialed preparers has come up regularly.  During the Obama administration, the IRS began to roll out the Registered Tax Return Preparer Program, or RTRP, which required registration, testing and continuing education for preparers. But after a lawsuit filed by a group of independent tax preparers in the case of Loving v. IRS, a federal judge invalidated the program in 2013, ruling that the IRS lacked the statutory authority to regulate preparers, although it could still require them to register with a Preparer Tax Identification Number, or PTIN. 

Since then, regulation of unenrolled tax preparers has been a longstanding goal of the IRS, and the IRS switched to offering a voluntary program known as the Annual Filing Season Program. CPAs, enrolled agents and tax attorneys have long been subject to testing and continuing education by professional organizations, however. Since the Loving case, other bills have been introduced in Congress to regulate unlicensed preparers, and the Biden administration included a proposal in its American Families Plan in 2021.

In the ETAAC report, the committee noted that there’s currently no federal education, certification or training requirement to prepare taxes for clients for a fee, creating an opportunity for unqualified people to provide inaccurate, low quality, out-of-compliance tax advice, and preparation to unsuspecting taxpayers. 

“Congress should authorize the IRS to regulate noncredentialed tax return preparers to prevent harm to taxpayers and the tax system,” said the report. “The IRS has the capability to implement a program that effectively trains and educates tax return preparers through its existing Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) training programs. This recommendation could be replicated from the framework of VITA and TCE for noncredentialed preparers. Implementing such a program would undoubtedly pay for itself and serve to protect the federal fisc.”

The report also recommends the IRS enable access via an application programming interface to taxpayer information to disrupt scams, promote modernization, accuracy, security and efficiency in the taxpayer experience.

It says the IRS should remove barriers to electronic filing while enhancing security by developing an alternative to the Self-Select PIN process with a more secure IRS e-file PIN. The IRS should also promote greater information sharing with states and industry partners of homogenized tax data, metrics, year-over-year metrics, and seasonal information, according to the report. The IRS should also conduct a cost/benefit analysis of free tax filing services for individual tax return preparation to expand and optimize access to underserved taxpayer groups using data. Another recommendation is to implement standardized validation rules of user provided data to enhance the accuracy and integrity of the data received by the IRS.

The IRS should enable tax professionals who have the proper authorization through Forms 8821, 8655 and 2848 to access taxpayer information online, ETAAC recommended. 

The IRS should enable third party authorization forms such as Forms 8655, 8821 and 2848 to be submitted and verified online, according to the committee.

ETAAC recommended the IRS should facilitate electronic filing for certain low volume information returns and other noncyclical filings.

ETAAC also suggested the IRS create a sunset project plan for its FIRE (Filing Information Returns Electronically) and AIR (Affordable Care Act Information Returns) systems to be integrated into the IRIS (Information Returns Intake System) to reduce taxpayer burden.

“ETAAC members serve as trusted advisors to the IRS on key issues of interest to tax administration and taxpayers,” said IRS Commissioner Danny Werfel in a statement Wednesday. “The committee has helped on a variety of fronts to help improve tax administration. The IRS leadership team will carefully review the recommendations in this report.”