The Senate Finance Committee is scheduled to consider Chairman Orrin Hatch’s bill to combat identity theft and tax refund fraud. The Center for Budget and Policy Priorities suggests that it should take this opportunity to restore a provision in a previous version of the bill that required paid tax return preparers to meet a basic standard of competence.
IRS research finds that about 400,000 preparers who prepare more than 13 million earned income tax credit (EITC) claims each year never have to pass any test to certify that they know the tax rules or to take any training on changes in tax rules. U.S. Comptroller General Gene Dodaro recently told the committee: “IRS found that paid preparers filed about 68 percent of the EITC returns in a year or two-year period of time and about 48 to 53 percent over claimed the tax credit.” Recommendations were made several years ago to allow the IRS to regulate paid tax preparers, but those regulations were overturned by the court. Dodaro reiterated the Government Accountability Office’s long-standing position that paid tax return preparers should meet a basic standard of competence.
IRS-sponsored Volunteer Income Tax Assistance (VITA) program and Tax Counseling for the Elderly do have to demonstrate competence and have much higher accuracy rates for EITC claims. The lack of oversight of unenrolled preparers, those who are neither attorneys, certified public accountants, nor enrolled agents, highlights the importance of VITA programs and the assistance they offer low-income families.