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Financial Planning > Tax Planning > Tax Reform

Paid Tax Preparers Should Be Regulated, Consumer Groups Say

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Just in time for tax season, a coalition of consumer and community organizations and advocates are calling on federal and state policymakers to enact measures that would require paid tax preparers to be regulated. 

As it stands now, only four states — Maryland, California, New York and Oregon — have enacted laws to regulate the practice of tax preparation.

The Consumer Federation of America, part of the coalition, released a paper Wednesday, Protecting Consumers at Tax Time: Federal and State Efforts to Address Common Problems Associated with Paid Tax Preparation, which provides details on the challenges consumers face when trying to pick a paid tax provider and the key components of what they argue is a “successful” state reform effort.

The paper cites a state proposal in Ohio, for instance, which would require tax preparers to include a standardized disclosure box listing the cost of services for particular tax forms and any fees. However, efforts in Colorado to require paid tax preparers to provide consumer disclosures about qualifications, fees, year-round contact information, and the preparer’s obligation to sign any returns they prepare, were narrowly defeated last year.

“More than half of all tax returns are prepared by paid tax preparers,” the coalition states. “However, only 40% of paid tax preparers are subject to mandatory professional standards, raising concerns about the possibility of errors or fraud in the tax preparation process.”

The coalition joins recent efforts by Senate Finance Committee ranking member Ron Wyden, D-Ore., and Sen. Ben Cardin, D-Md., who introduced legislation in early January to give the Treasury Department and the IRS “explicit authority” to regulate paid tax return preparers.

The bill, The Taxpayer Protection Act of 2015, requires preparers to demonstrate competency in preparing tax returns, claims for refunds and related documents.

The lawmakers as well as the coalition are trying to circumvent a recent federal appeals court decision, Loving v. IRS, which the coalition says “blocked the ability of the Internal Revenue Service to institute minimum licensing and training requirements, shifting the responsibility to protect consumers to state legislatures.”

The CFA paper states that approximately 56% of individual tax returns were completed by a paid preparer in tax year 2011, more often for more complex returns.

However, only 40% of paid tax preparers — attorneys, enrolled agents and certified public accountants — are required to meet mandatory professional standards nationally, the paper says. “That means most taxpayers are having their returns prepared by paid preparers that are not subject to licensing or certification.”

The coalition is pressing for federal legislation, which it says is “needed to ensure that the IRS has the authority to issue minimum standards and require certification of paid tax preparers.”

In the absence of such legislation, however, the 46 remaining states should adopt legislation “requiring pricing transparency, education requirements and competency standards and regulation of tax-related credit products and ancillary fees.”

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