IRS Reform: How the Protecting Taxpayers Act Impacts Tax Preparers

TaxSlayer Pro user explaining the protecting taxpayers act to a client

More than half of all taxpayers in the US rely on a professional service to help them prepare and file their taxes. These individuals use accountants, CPAs and other tax preparation services like you to get their tax records and forms in order. Like any industry that deals with money or income, there are some discrepancies when it comes to the validity of practicing tax preparation. To make sure taxpayers are protected and proper tax preparers are defended, the Protecting Taxpayers Actis in place to set up more tangible standards by which tax preparers are held. 

Introduced in July 2018, the act is currently being debated by Congress. The act has been approved by the American Institute of Certified Public Accountants (AICPA), and if it’s signed into law, it will affect your business in several ways. These are documented in section 202, “Regulation of Tax Return Preparers.” Here’s how it could affect you.

Minimum competency standards for tax preparers

The IRS expects tax preparers to have “minimum competency standards.” These competency requirements broadly fall into three sections:

  • Getting a special identification number that shows the person is a qualified tax preparer and meets the requirements set forth by official bodies.
  • Meeting any initial or ongoing educational and training requirements and passing any required tests or exams as set forth by official bodies.
  • Completing a background check to ensure an appropriate level of experience, expertise, and ethics.

Tax returns must be prepared and filed with the tax preparer’s identification number

The bill states that any tax returns or claims for refunds prepared by a tax professional must have an identifying number for securing proper identification of the tax preparer, their employer, or both. This doesn’t apply if the tax preparer who prepares a tax return under the supervision and direction of another tax return preparer who signs the documents and is a CPA, attorney, or enrolled agent.

This means you and each member of your staff must obtain an ID number to file returns in line with proposed IRS rules.

Removing the identification number of a professional tax preparer

In some cases, the IRS may choose to rescind a tax preparer’s identification number. One example of how this could happen is as follows:

  • The IRS provides notice of an issue to the tax preparer and invites them to attend a hearing.
  • The tax preparer attends the hearing and is shown to be incompetent or disreputable.
  • The IRS believes that rescindingthe number will encourage compliance with tax and tax preparer regulations.

This means that you must maintain standards and file tax returns in line with IRS regulations and guidelines. Failure to do so could result in the loss of the tax preparer’s IDnumber.

In short, this bill is designed to ensure that tax preparers submit accurate, high-quality tax returns and provides necessary identification numbers to professionals that can meet those standards.