The Senate Finance Committee passed legislation Wednesday to protect taxpayers from identity theft and tax fraud, but without a provision for regulating tax preparers.
Ron Wyden
The legislation, known as the Taxpayer Protection Act of 2016, includes provisions such as providing a sole point of contact for identity theft victims to help them recover their stolen or unfairly suspended tax refunds. Another provision would require the Internal Revenue Service to issue a report, in consultation with the Federal Communications Commission and the Federal Trade Commission, to protect consumers from phone scams in which criminals pretend to be IRS agents.
The bill would also reform the IRS’s communications with whistleblowers, allowing the IRS to exchange information with whistleblowers when doing so would be helpful in an investigation and requiring the IRS to notify whistleblowers of the status of their claims. Another provision would prohibit rehiring IRS employees who have been suspended for misconduct and clarify that the IRS commissioner has the power to fire senior executives who have failed in their performance or committed serious misconduct.
During the markup of the legislation Wednesday, the ranking Democrat on the Senate Finance Committee, Sen. Ron Wyden, D-Ore., reiterated his call for restoring a provision to the legislation giving the IRS authority to regulate tax preparers (see Senate Committee Drops Tax Preparer Regulation from Identity Theft Bill). Federal courts invalidated the IRS’s earlier attempt to establish a Registered Tax Return Preparer program back in 2013 in the case of Loving v. IRS, saying the IRS lacked the statutory authority from Congress to mandate tax preparer testing and continuing education. The IRS has since established a voluntary program known as the Annual Filing Season Program.
“If this legislation, when it hits the Senate floor, doesn’t allow for minimum standards to crack down on crooked, fraudulent, and incompetent return preparers, it will be one more example of lawmakers in Congress willfully failing to protect vulnerable taxpayers,” Wyden said in a statement Wednesday. “Right now there are no minimum national standards whatsoever for paid tax return preparers. No rules to prevent rank incompetence. No safeguards to keep con artists from falsifying returns and leaving their victims in financial ruin. It just doesn’t pass the smell test to say everything’s A-OK with a system that has taxpayers handing over their Social Security and bank account numbers to people who meet no standards at all.”
The committee chairman, Sen. Orrin Hatch, R-Utah, conceded that the legislation doesn’t go far enough, but pointed out that it has many important provisions. “The bill we’ll debate – and hopefully report – today consists of 18 separate provisions and represents a significant step forward in the effort to address and hopefully prevent stolen identity refund fraud,” said Hatch. “That said, none of us are under any illusions that this legislation will solve the problem entirely. For now, our goal is to make it as difficult as possible for fraudsters to get away with these types of crimes. The bill aims to put more tools in the proverbial toolbox, and, going forward, the committee will remain vigilant as we seek to identify additional measures that will allow us to detect and prevent stolen identity refund fraud. And, we will also continue to oversee the activities of the IRS and the private tax preparation and processing industry to ensure that these growing problems are adequately and appropriately addressed by using the tools that will be provided by this bill.”
Hatch pointed to a 2015 survey from the American Institute of CPAs in which 63 percent of CPAs said that at least one of their clients was a victim of tax identity theft in the 2015 filing season. “With the theft of sensitive taxpayer information at large retailers, insurers, and other entities across the United States, as well as the recent breach of the IRS’s Get Transcript and IP PIN tools, we will almost certainly see this trend continue in the future unless further action is taken,” said Hatch. “The continued and heightened threats to taxpayers and the tax system from cybercriminals that we heard about at our hearing last week is yet another reason for the committee to act today to move this bipartisan legislation forward.”
The AICPA issued a statement in support of the legislation and said it shared the goal of elevating the competency and ethical conduct of tax preparers.
“The AICPA welcomes the Senate Finance Committee’s action to prevent identity theft and tax refund fraud,” said AICPA vice president of taxation Edward Karl. “We have a longstanding position of supporting provisions that mitigate tax identity theft, including expansion of the Identity Protection PIN system to all taxpayers, making it a felony for a person to use a stolen identity to file a return, increased electronic filing of returns by paid tax return preparers, and reports to Congress by the GAO about identity theft and tax refund fraud. We also share the goal of the committee and its leaders to elevate the competency and ethical conduct of tax return preparers.”
The AICPA said it also backed Wyden’s proposal. “We are especially grateful to Senator Ron Wyden (D-Ore.), the committee’s ranking member, for offering an amendment calling for a practical approach to preparer regulation,” said Karl. “His proposal contained many of the AICPA’s recommendations to protect the public from incompetent and fraudulent tax preparers, including granting the IRS the authority to revoke Preparer Tax Identification Numbers (PTINs), requiring only those signing a return to obtain a PTIN and mitigating marketplace confusion by requiring unlicensed PTIN holders who advertise to direct taxpayers to the IRS website where differences between preparers are explained. We support the passage of the Taxpayer Protection Act of 2016 and we look forward to working with Chairman Hatch and Ranking Member Wyden to address preparer regulation and protect the interests of the American taxpayer.”
The Senate Finance Committee voted to pass the legislation Wednesday. “Today the Finance Committee acted in a strong bipartisan fashion to advance commonsense legislation that will ensure better stewardship of taxpayer dollars and shield Americans from fraudsters seeking to steal identities and claim tax refunds that don’t belong to them,” said Hatch. “Our efforts today further underscore the success we’ve had at the Committee this Congress, where we’ve now cleared nearly 40 bipartisan bills. I look forward to continuing to build upon this success and working with my colleagues on both sides of the aisle to advance smart legislation, like the measures we voted on today, and promote a strong, pro-growth agenda that will benefit the American people.”
Sen. Chuck Grassley, R-Iowa, said the committee had approved several of his provisions, including better IRS treatment of tax fraud whistleblowers, enhanced rights of taxpayers whose personal information is improperly accessed by IRS employees, extended time for taxpayers to contest an IRS levy, greater protections for taxpayers where the IRS improperly levied a taxpayer’s individual retirement account, electronic record retention at the IRS, and requiring mandatory e-filing by tax-exempt organizations for greater transparency.
“The IRS needs to put out the welcome mat for tax fraud whistleblowers, not treat them like skunks at a picnic,” Grassley said. “With congressional oversight, the IRS has done a better job of whistleblower treatment than before but it still needs to communicate more with whistleblowers. These individuals are less likely to come forward if they know they might be in the dark about their case for years at a time. Also, employer retaliation of whistleblowers is a barrier. The provisions approved today will help with these problems. Separately, right now, taxpayers are often in the dark when IRS employees improperly access or distribute their confidential information. The fix approved today requires the IRS to notify a taxpayer when an IRS employee is disciplined for improper access. That’s a step in the right direction for respecting taxpayer rights.”