The TAS Act Strikes a Reasonable Balance on Return Preparer Oversight

Introduction
On January 30, 2025, Senators Mike Crapo, Chairman of the Senate Finance Committee, and Ron Wyden, the Committee’s ranking member, jointly introduced a discussion draft of the Taxpayer Assistance and Service (“TAS”) Act. This proposed legislation represents a comprehensive effort to enhance U.S. tax administration. Of its 68 provisions, about 40 align with recommendations I’ve advocated for in my recent Annual Reports to Congress and Purple Book of Legislative Recommendations.

In a previous blog, I emphasized how this legislation could significantly enhance taxpayer rights. Continuing the series, this blog will discuss some of the major issues concerning paid return preparer oversight. I argue that the TAS Act provisions strike a reasonable balance between protecting taxpayers and minimizing the burden on preparers.

Why This Is A Problem
Each year, millions of taxpayers hire paid tax return preparers to help them file their returns accurately and claim the tax benefits they’re entitled to receive under the law. Unfortunately, paid preparers generally do not need to meet any education or ethics requirements. Too often, taxpayers are not well served, and the public fisc is shortchanged. In 2023, over 60 percent of all returns prepared for hire were prepared by individuals without credentials (i.e., those who were not accountants, attorneys, or enrolled agents).

While many non-credentialed return preparers are highly competent and ethical, the lack of federal oversight has created an environment where incompetent or unscrupulous preparers can commit too many mistakes or even promote taxpayer fraud with only minor consequences. For this reason, return preparer oversight is one of the most important issues for tax administration today.

This issue is also one of the most contentious. The discussion draft of the TAS Act has brought to the fore concerns about return preparer oversight, professional standards, and taxpayer protection.

The Case for Tax Preparer Oversight
Numerous studies, including “shopping visit” audits conducted by the Government Accountability Office (GAO) and the Treasury Inspector General for Tax Administration (TIGTA) auditors posing as taxpayers found that non-credentialed tax return preparers frequently prepare inaccurate returns – some by mistake and others by claiming tax benefits for which they know the taxpayer is not eligible.

The Earned Income Tax Credit (EITC), which Congress designed to support millions of lower-income families, has been plagued by a high rate of improper claims. In FY 2023, 33.5 percent of EITC payments, amounting to $21.9 billion, were estimated to be improper. Among tax returns claiming the EITC prepared by paid tax return preparers, 96 percent of the total dollar amount of EITC audit adjustments was attributable to returns prepared by non-credentialed preparers.

Another striking example is the abuse of credits for sick and family leave for certain self-employed individuals on Form 7202. Congress created this credit to help self-employed taxpayers affected by the pandemic. However, as of October 29, 2024, non-credentialed preparers were responsible for 83 percent of the returns claiming this credit and for a staggering 98 percent of all disallowed claims after IRS audit. Many taxpayers, unaware that their preparers had incorrectly claimed these credits, faced excessive fraud penalties and collection demands.

Although somewhat dated, the GAO conducted two sets of shopping visits that further illustrate the magnitude of errors committed by non-credentialed preparers. In 2006, GAO auditors posing as taxpayers made 19 visits to several national tax return preparation chains in a large metropolitan area. Using two carefully designed fact patterns, they sought assistance in preparing tax returns. On 17 of 19 returns, preparers computed the wrong refund amounts with variations of several thousand dollars. In five cases, the prepared returns reflected unwarranted excess refunds of nearly $2,000. In two cases, the prepared returns would have caused the taxpayer to overpay by more than $1,500 (e.g., by not claiming all deductions or other tax benefits for which the taxpayer qualified). In five out of ten cases in which the EITC was claimed, preparers failed to ask where the auditor’s child lived or ignored the auditor’s answer and prepared returns claiming ineligible children. In ten of 19 cases, business income was not reported. The GAO conducted a similar study in 2014. It again found that preparers computed the wrong tax liability on 17 of 19 prepared returns.

These examples suggest a significant portion of errors originate from preparers who lack the training or ethical accountability required to ensure accurate tax filings. The taxpayers who suffer most from these errors are often those who can least afford the consequences: low-income individuals facing audits, penalties, and frozen refunds due to preparer incompetence or unscrupulous misconduct. To address these problems, various proposals have been made to create minimum standards in the return preparation industry, including by requiring non-credentialed preparers to pass a basic competency test in return preparation and to take annual continuing education courses.

Concerns Over IRS Regulation of Preparers
Many small business return preparers and independent practitioners see proposed requirements like competency tests and continuing education courses as overly burdensome and unnecessary. They argue these requirements could push smaller, legitimate preparers out of business and may thereby reduce access to affordable tax return preparation services.

• Critics of IRS oversight contend that existing preparer tax identification number (PTIN) requirements and penalties already provide sufficient safeguards against fraudulent tax preparation. Regarding competency tests, they argue that some people are not good test-takers, and the requirement to pass a test may exclude competent preparers who have been successfully preparing returns for years. As for continuing education, critics contend that a high number of hours requirement would prevent them from spending those hours conducting business and earning income. They say the IRS already has the authority to recommend prosecution of individuals who violate the law.
TAS’s Previous Recommendations
The authority to oversee return preparers must ultimately come from Congress, as the courts have determined that “tax preparation” is not considered “tax representation” (see Loving v. IRS, 742 F.3d 1013 (D.C. Cir. 2014)). This distinction is important because oversight for taxpayer representation exists under 31 U.S.C. § 330(a) and accompanying regulations, known as Circular 230. These laws establish standards for individuals representing taxpayers before the IRS.

However, no similar standards currently exist for return preparers. To charge for tax preparation, an individual merely needs to obtain a PTIN — a process with no continuing education requirement, no ethical standards, and little IRS oversight. As long as one pays the renewal fee, they get to keep their PTIN.

For years, I have urged Congress to establish minimum standards for return preparers similar to those imposed on attorneys, CPAs, and enrolled agents who represent taxpayers before the IRS. These recommendations also emphasized the urgent need for stricter preparer penalties and IRS authority to suspend or revoke a preparer’s PTIN for violation of the minimum standards.

The TAS Act
While the TAS Act discussion draft does not adopt my prior recommendations word for word, it does achieve the same goals through different legislative mechanisms. For example, I have repeatedly recommended Congress amend 31 U.S.C. § 330 to authorize the Secretary of the Treasury to establish minimum standards for paid federal tax return preparers. This would overcome the objection in Loving and explicitly grant the IRS oversight authority over tax return preparers, which should improve competence through continuing education and required ethical standards of behavior. I also recommended Congress give the IRS the authority to revoke a PTIN for violations of these standards, a power many are surprised to learn the agency does not currently have.

Establishing and Enforcing Minimum Standards
The TAS Act does not amend 31 U.S.C. § 330 as I have recommended, but it achieves the same goal by amending IRC § 6109 (see TAS Act § 504), which requires all PTIN holders to meet minimum standards to retain their PTIN registration. Specifically, § 504 requires that PTIN holders must:

• Complete annual continuing education requirements to stay informed on tax law changes.
• Not be incompetent, as demonstrated by a repeated pattern of errors in prepared returns.
• Not willfully mislead or threaten clients or potential clients seeking tax preparation services.
• Not be disreputable, which includes providing false or misleading information, failing to comply with personal tax obligations, being convicted of crimes involving dishonesty or breach of trust, or being subject to preparer penalties for misconduct under IRC §§ 6694, 6695(h), 6700, 6701, or 6702.
Section 504 of the TAS Act also authorizes the IRS to revoke or suspend a PTIN if the preparer fails to meet these standards in addition to significant monetary penalties for infractions, which are $1,000 per violation. If the fraud, misrepresentation, or threats are willful, the penalties may be up to 100 percent of the income derived (or to be derived) per violation. This approach provides an enforcement mechanism that ensures preparers are held to a minimum standard without directly amending 31 U.S.C. § 330.

Tracking Down Ghost Preparers
In my previous Annual Reports to Congress, I identified “ghost preparers“ as a most serious problem for taxpayers. These are individuals who prepare returns but fail to sign them or use a valid PTIN. Ghost preparers evade existing IRS penalties and are often responsible for a high volume of fraudulent and erroneous returns.

Section 502 of the TAS Act discussion draft specifically addresses this issue by:

• Requiring all preparers to use their own PTINs and imposing a penalty of $250 per violation, with a maximum of $75,000 for repeat offenses.
• Authorizing criminal penalties for intentional PTIN misuse, including fines of up to $50,000 ($100,000 for a corporation) and up to two years in prison.
• Enhancing IRS enforcement capabilities by mandating stricter PTIN tracking, verification, and revocation processes.
This section translates the concerns I’ve raised these past few years into concrete legislative action, ensuring the IRS has the necessary tools to hold ghost preparers and other abusers of the PTIN requirement accountable to reduce taxpayer exposure to fraud. Together, sections 502 and 504 of the discussion draft establish the requirement of a valid PTIN, establish minimum standards for PTIN holders, impose meaningful penalties for violations of the PTIN rules, and authorize the IRS to suspend or revoke a PTIN for violations of these rules.

Penalizing Fraudulent Return Alteration
In another legislative recommendation, I called for stronger penalties against return preparers who fraudulently alter returns after they have been signed by taxpayers. Unscrupulous preparers sometimes change refund amounts, divert funds to their own accounts, or manipulate return details for their benefit. But the IRS had difficulty asserting penalties against such actions because a tax return that is altered after a taxpayer has signed it is no longer legally a “return.”

Section 501of the discussion draft directly implements my recommendation by amending IRC § 6696(e) to broaden the definition of “return” for penalty purposes. This ensures fraudulent alterations are punishable, and that preparers who engage in post-signature alterations face significant financial penalties. Specifically:

• The penalties for fraudulent alterations are expanded beyond tax returns to include electronic refund adjustments and unauthorized modifications to a document purporting to be a return.
• Preparers who are caught manipulating tax documents face stiffer penalties and potential revocation of their PTIN (see TAS Act § 504).
The TAS Act adopts my previous recommendation by ensuring preparers who engage in fraudulent alterations cannot continue to operate unchecked.

Deterring Refund Misappropriation
One of the most egregious abuses by fraudulent preparers involves misappropriating taxpayer refunds, either by diverting funds into their own accounts or by inflating refund amounts to charge higher fees. Current law does not allow a preparer to endorse a taxpayer’s refund check, but IRS Chief Counsel has determined that actions such as changing the direct deposit information on a tax return is not the equivalent of endorsing or otherwise negotiating a taxpayer’s refund check. For this reason, I have repeatedly recommended Congress amend the law to include electronic refunds that are not otherwise deemed to be checks, and to increase the penalties for misappropriation so that they become meaningful deterrents.

Section 503 of the TAS Act implements this recommendation by:

• Increasing civil penalties for refund misappropriation to $250 per offense with a maximum penalty of $75,000.
• Creating a new subsection (f) in IRC § 6695 to impose penalties on preparers who (1) endorse or negotiate (directly or indirectly) a taxpayer’s refund check, or (2) misappropriate a refund or advance payment with respect to a refundable credit via electronic refund transfer. The new penalty amount will be the greater of $1,000 or the full amount (100 percent) of the misappropriated refund amount.

Together, sections 501 and 503 of the TAS Act would fully implement my prior recommendation to Congress by redefining what constitutes a “return” for penalty purposes, expanding civil penalties to cover theft involving electronic refunds, and aligning penalty amounts with the scale and severity of the preparer fraud.

However, one question remains: Would the new IRC § 6695(f) apply to the misappropriation of debit cards issued to taxpayers in lieu of a refund check or electronic transfer? This scenario arises occasionally, particularly for taxpayers who lack traditional banking services. I recommend that Congress explicitly address this issue, as existing interpretations have not always considered debit cards equivalent to an electronic funds transfer for purposes of IRC § 6695(f), similar to how electronic funds transfers were previously not treated the same as refund checks.

The Right Balance
The National Taxpayer Advocate first proposed creating minimum standards for tax return preparers in 2002. The Senate Finance Committee approved the proposal twice under the leadership of then-Chairman Grassley and the full Senate approved it once, but both bills died. Around 2009 to 2011, the IRS sought to implement minimum standards and worked closely with stakeholders to make the proposal as workable as possible, but in the end, the courts invalidated them. While I would prefer to see somewhat stronger minimum standards, the reality is that small business tax preparers have legitimate concerns, and I have become convinced that the only way to make progress is to accept a plan that imposes less burden. In my view, the discussion draft of the TAS act does that. Rather than making the perfect the enemy of the good, I believe the TAS Act strikes a balance everyone can live with.

Conclusion
Return preparers have become an integral part of the United States tax system. The debate over return preparer oversight is not about targeting hardworking, honest professionals. It’s about preventing fraud and ensuring taxpayers receive the legally accurate and ethical service they deserve. The TAS Act provisions represent a balanced approach, preserving professional autonomy while protecting vulnerable taxpayers from predatory preparers.

For the tax system to work, taxpayers must be able to trust their preparers instead of gambling on whether they are honest. With the right safeguards in place, Congress can protect both taxpayers and ethical tax preparers, ensuring accountability and accessibility in return preparation.

Resources
• National Taxpayer Advocate 2025 Purple Book Legislative Recommendation Numbers 4 and 32
• National Taxpayer Advocate 2024 Annual Report to Congress Most Serious Problem: Tax-Related Scams; National Taxpayer Advocate 2023 Annual Report to Congress Most Serious Problem: Return Preparer Oversight
• TAS Act discussion draft
• NTA Blog, A Grave Error: Don’t Allow “Ghost Preparers” to Turn Your Taxes Into a Horror Story

 

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