October 01,2004

Baucus and Grassley Release Staff Draft of the Registration of Income Tax Return Preparer Proposal

Today, the Senate Finance Committee released a staff draft of the registration of incometax return preparer proposal included in the Tax Administration Good Government Act, H.R.1528 [as passed by the Senate on May 19, 2004]. The House companion bill to the TaxAdministration Good Government Act was passed June 19, 2003. Differences between the twobills have yet to be reconciled. The Senate Finance Committee received comments on theoriginal provision. The staff draft is released to inform interested parties of the current staffposition on the provision and to solicit additional comments. A copy of the statutory languagecan be found on both Senator Grassley’s and Senator Baucus’ press release page.

The following is an explanation of the staff draft:


(sec. 141 of hr 1528 as passed by the Senate May 19, 2004 and new sec. 7530 of the InternalRevenue Code)

October 1, 2004

Present Law

The Secretary of the Treasury is authorized to regulate the practice of representatives ofpersons before the Department of the Treasury (31 U.S.C. 330). The Secretary is also authorizedto suspend or disbar from practice before the Department a representative who is incompetent,who is disreputable, who violates the rules regulating practice before the Department, or who(with intent to defraud) willfully and knowingly misleads or threatens the person beingrepresented (or a person who may be represented). The rules promulgated by the Secretarypursua nt to this provision are contained in Circular 230. In general, the preparation and filing oftax returns (absent further involvement) has not been considered within the scope of theseCircular 230 provisions.

Federal income tax return preparers as included in HR 1528 as passed by the Senate

The provision required the annual registration of Federal income tax return preparers withthe IRS. The provision provided that any person who was paid to prepare five or more returns ina year was required to register, except that the provision did not apply to a qualifiedrepresentative (whether or not an attorney) who is authorized to practice before the IRS or anapplicable court. Preparers were required to pass an annual examination and meet standards ofconduct in order to register. The IRS was authorized to charge reasonable fees to defray the costsof administering this program. The provision imposed penalties for non-compliance with theprovision. The provision required the Secretary to conduct a public awareness campaign and tomaintain a public list of registered preparers. The provision permitted the Secretary to use anyfunds specifically appropriated for earned income credit compliance to improve compliance withthe provision. The provision was effective on the date of enactment.

Payroll Providers and Refund anticipation loan providers

Section 141 of HR 1528 as passed by the Senate included provisions to regulate payrollproviders and refund anticipation loan providers. Revised statutory language for theseprovisions will be distributed for public comment at a later date.

Staff Revised Regulation of Preparer Proposal

The Senate Finance Committee staff draft revises the registration of income tax returnpreparer as follows:

The revised proposal provides that the Secretary of the Treasury shall issue regulationsno later than three years after the date of enactment requiring the registration of income taxreturn preparers as generally defined in section 7701(a)(36). However, preparers authorized topractice before the IRS that are subject to oversight under present law are excluded from theregistration requirements.

The Secretary is required to minimize the burden and cost on those subject to theregistration requirement to the extent feasible. Thus, the Secretary is authorized to define thescope of the registration requirement in a manner that accomplishes this goal. For example, theregulations may limit the registration requirement to income tax return preparers who prepare aminimum number of returns or based on other factors the Secretary deems appropriate.To qualify for registration, income tax return preparers are required to pass an initialexamination that tests an applicant’s technical knowledge to prepare Federal tax returns,knowledge of ethical standards, and compliance with the earned income tax credit. TheSecretary is also authorized to contract for both the development and administration of theexamination.

The staff draft proposes that income tax return preparers subject to the registrationrequirement shall be required to renew their registration every three years in a manner set forthby the Secretary in regulations. As part of the renewal process, registrants are required toestablish completion of continuing education requirements set forth in regulations. Income taxreturn preparers are also subject to the rules of conduct that govern any federally authorized taxpractitioner within the meaning of section 7525(a)(3)(A).

The proposal requires the payment of reasonable fees for registration and renewal asdetailed in regulations. The fees paid for registration and renewal shall be available to theSecretary for the purpose of reimbursing the costs of administering and enforcing the registrationrequirement provisions.

The proposal provides for the imposition of a $500 penalty for each tax return preparedby any person subject to the registration requirements who is not registered. In addition, theproposal increases the penalties on income tax return preparers who fail to sign a retur n or fail toprovide an identifying number on a return from $50 to $500 per return. The Secretary isauthorized to use amounts received from the imposition of penalties under section 6694 and 6695for the costs of administering the registration program. The staff draft also authorizes theSecretary to use funds designated for earned income tax credit compliance to improve andexpand the registration program and general enforcement of income tax return preparers.

The staff draft provides that the Secretary shall conduct a public awareness campaign toinform the public of the importance of choosing a competent income tax return preparer and ofthe registration requirements imposed on certain income tax return preparers and the generalrequirement that such preparers must sign the return and provide their registration number on thereturn. The provision is effective on the date of enactment.