[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




                               before the

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION


                             JULY 28, 2011


                           Serial No. 112-OS7


         Printed for the use of the Committee on Ways and Means


70-890                    WASHINGTON : 2011
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                      COMMITTEE ON WAYS AND MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                  CHARLES W. BOUSTANY, JR., Louisiana

DIANE BLACK, Tennessee               JOHN LEWIS, Georgia
JIM GERLACH, Pennslyvannia           XAVIER BECERRA, California
VERN BUCHANAN, Florida               RON KIND, Wisconsin
AARON SCHOCK, Illinois               JIM MCDERMOTT, Washington

                       Jon Traub, Staff Director

                  Janice Mays, Minority Staff Director

                            C O N T E N T S


Advisory of July 28, 2011, announcing the hearing................     2



David Williams, Director, IRS Return Preparer Office, Internal 
  Revenue Service, Washington, D.C. Testimony....................     5
Jim White Director, Strategic Issues, Government Accountability 
  Office, Washington, D.C. Testimony.............................    16

Kathy Pickering Vice President--Government Relations and 
  Executive Director of the Tax Institute, H&R Block, Kansas 
  City, MO Testimony.............................................    43
Patricia Thompson Chair, AICPA Tax Executive Committee, American 
  Institute of Certified Public Accountants, Washington, D.C. 
  Testimony......................................................    51
Paul Cinquemani Director of Member Services, Business Development 
  and Government Relations, National Association of Tax 
  Professionals, Appleton, WI Testimony..........................    58
Lonnie Gary EA, USTCP Chair, National Association of Enrolled 
  Agents Government Relations Committee, Washington, D.C. 
  Testimony......................................................    69
David Rothstein Researcher, Policy Matters Ohio, Research Fellow, 
  The New America Foundation, Cleveland, OH Testimony............    74



                        THURSDAY, JULY 28, 2011

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                 Subcommittee on Oversight,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:32 a.m., in 
Room 1100, Longworth House Office Building, the Honorable 
Charles Boustany [chairman of the subcommittee] presiding.
    [The advisory of the hearing follows:]



 Boustany Announces Hearing on New IRS Paid Tax Return Preparer Program

Thursday, July 28, 2011

    Congressman Charles W. Boustany, Jr., MD, (R-LA), Chairman of the 
Subcommittee on Oversight of the Committee on Ways and Means, today 
announced the Subcommittee will hold a hearing on the new IRS paid tax 
return preparer program. The hearing will take place on Thursday, July 
28, 2011, in Room 1100 of the Longworth House Office Building, 
beginning at 9:30 A.M.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of invited 
witnesses will follow.


    Approximately sixty percent of taxpayers pay a professional to 
prepare their Federal income tax returns. The Government Accountability 
Office (``GAO'') has long noted the impact of these preparers on tax 
compliance and the need for stronger oversight of the tax preparer 
community. Among GAO's concerns are errors by tax return preparers that 
affect improper payments, including an estimated $106 billion in 
improper refundable tax credits in recent years.
    In response to these and other concerns, the IRS initiated a tax 
return preparer initiative to stop erroneous returns at the source, 
rather than through the laborious and expensive audit process. The 
program has created a new category of paid return preparer: the 
``registered'' tax return preparer.
    As of January 1, 2011, anyone who is paid to prepare ``all or a 
substantial portion'' of a tax return is required to obtain a Paid-
Preparer Tax Identification Number (``PTIN''). These registered tax 
return preparers will be subject to several requirements, including 
registration, competency testing, background checks, continuing 
professional education, and certain ethical standards. To date, 
approximately 717,000 individuals have received PTINs. PTINs issued to 
individuals who are not attorneys, certified public accountants, or 
enrolled agents, will only be valid until 2013, when the preparers must 
meet the additional requirements.
    In January 2010, the IRS estimated that the program would take 
three years to be fully implemented and to show results in reducing 
improper payments to the clients of these preparers. However, a year 
and a half later, GAO has urged the IRS to provide measurable 
performance goals and better communicate with tax practitioners 
regarding the new requirements.
    In announcing the hearing, Chairman Boustany said, ``This hearing 
is a continuation of the Subcommittee's oversight of the IRS and the 
alarming rates of tax noncompliance. With so many Americans relying on 
paid professionals to prepare their returns, it is critical that we 
better understand what the IRS is doing and what impact the new 
regulations will have on taxpayers, paid tax return preparers, and tax 


    The hearing will focus on reviewing the new requirements on paid 
return preparers, assessing progress made by the IRS in preparing and 
implementing a program work plan, and understanding how this will 
ultimately impact the tax return preparer community and taxpayers.



    Please Note: Any person(s) and/or organization(s) wishing to submit 
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    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

    Chairman BOUSTANY. Good morning, everyone, and welcome to 
this morning's Oversight Subcommittee hearing on the IRS paid 
tax return preparer program.
    In recent years the increasing complexity of the Internal 
Revenue Code has led more and more Americans to rely on paid 
tax return preparers to fulfill their tax return filing 
obligations. Paid tax return preparers prepared an estimated 60 
percent of all federal returns filed. In fact, at a 
subcommittee hearing earlier this year, even the commissioner 
of the IRS testified that he relies on a paid return preparer.
    Paid tax return preparers serve an important role in tax 
administration, and are often a taxpayer's only source of 
advice on their income taxes. GAO has monitored this trend, and 
issued reports detailing the need for increased oversight on 
the rapidly growing tax return preparer community.
    The results of these reviews are somewhat disheartening. 
GAO has found that nearly all tax returns that were prepared 
during its review contained mistakes. Not all mistakes were 
intentional, but they all contribute to erroneous returns that 
have cost taxpayers billions of dollars. For example, errors 
related to refundable tax credits, if you look at all of them, 
have led to an estimated $106 billion in improper payments over 
the last decade.
    In 2010, the IRS launched a paid return preparer 
initiative, which it hopes will stop abusive returns at the 
source, rather than through lengthy and expensive audit 
processes. Under this new oversight regime, return preparers 
must register with the IRS, pay an application fee, and will be 
assigned a unique identification number. The IRS also plans to 
impose mandatory minimum competency testing, continuing 
education requirements, background and tax checks, and certain 
ethical standards.
    The IRS believes this program will improve preparer 
competence and service to taxpayers, and result in greater tax 
compliance. This morning's hearing will focus on how this 
program is coming together, and how it might affect both 
taxpayers and the return preparer community.
    This initiative enjoys broad-based support, but there are 
some lingering concerns and questions that remain unanswered. 
Much of the program will not be in place until 2013, so we will 
not know its full impact for some time. However, it does remain 
unclear how the initiative will ultimately impact tax 
compliance. A recent report issued by GAO raised concerns 
regarding the program's future effectiveness.
    We do not yet know the full cost and compliance burdens the 
new program will place on return preparers, or whether the 
requirements will yield the intended benefits. Indeed, the new 
requirements will cost tax return preparers an estimated $51 
million to $77 million annually in registration fees alone. 
This does not include the additional cost associated with 
taking the competency examination and continuing education.
    It is also necessary that the IRS conduct outreach to 
ensure that return preparers and taxpayers alike know and 
understand the new requirements. Without an effective public 
education campaign and enforcement plan, some argue that little 
progress is being made at reaching preparers that pose the 
greatest compliance risk. And we do understand there are 
challenges with that, but this will be one issue we can 
    This is a critical issue for tax administration, and it is 
important that Congress understand the new requirements and 
continues its oversight to judge whether the new program 
improves tax compliance. Tax payers, paid preparers, and the 
IRS are best served if this initiative is successful.
    Before I yield to Ranking Member Lewis, I ask unanimous 
consent that all Members' written statements be included in the 
    [No response.]
    Chairman BOUSTANY. Without objection, so ordered. And now I 
turn to the ranking member, Mr. Lewis, for his opening 
    Mr. LEWIS. Thank you, Chairman Boustany, for holding this 
hearing. The regulation of paid tax return preparers is an 
important topic, important for taxpayers and important for tax 
compliance. I want to commend the Internal Revenue Service for 
its leadership in this area, and am pleased with the overall 
strategy of the agency and its time line for phasing in the new 
    I am also pleased that many in the paid preparer community 
support the program. We have all heard too many stories of fly-
by-night tax preparers who take advantage of low-income and 
middle-income taxpayers. I have long believed that regulating 
tax preparers will protect taxpayers by making sure persons who 
are paid to prepare returns are knowledgeable and trustworthy.
    I also believe that regulating tax preparers will enhanced 
tax compliance. The new requirements will allow the IRS to 
provide more oversight of preparers. This will allow the agents 
to detect patterns of fraud or simple errors, and take steps to 
remedy the problems and protect taxpayers.
    In closing, I want to thank our witnesses for being here 
today. I look forward to your testimony and any recommendations 
you may have for protecting taxpayers and educating them about 
this necessary program.
    Thank you very much, Mr. Chairman.
    Chairman BOUSTANY. I thank the gentleman for his statement. 
We will now turn to our first panel of witnesses. I want to 
welcome Mr. David Williams, who is director of the IRS Return 
Preparer Office, and Mr. Jim White, who is director of 
strategic issues with the Government Accountability Office. I 
want to thank both of you for being here today, and for the 
work you are doing on this. You will each have five minutes to 
present your testimony, with your full written testimony 
submitted for the record.
    Mr. Williams, I know you have done a lot of work on this, 
and we appreciate you being here, and look forward to your 
testimony. I do know that this is a big priority for 
Commissioner Shulman.
    And so, you may proceed, sir.


    Mr. WILLIAMS. Thank you, Mr. Chairman, Ranking Member 
Lewis, and Members of the Subcommittee. We really appreciate 
the opportunity to testify on the IRS's tax return preparer 
program, which we think is one of the most important 
initiatives that the IRS has undertaken in recent memory.
    For decades, most taxpayers prepared their own returns. 
However, over the past 20 to 30 years, the reality of tax 
filing in this country has changed dramatically. Today, more 
than 8 out of 10 taxpayers use a preparer or tax software.
    There are a number of positives in this growing trend. One 
of the most important is that qualified return preparers can 
help taxpayers file accurate and timely returns from the start. 
Working with the taxpayer, they can prevent inadvertent errors, 
which can save both taxpayers and the IRS precious time and 
resources, and keep taxpayers' interactions with the IRS to a 
minimum, which I think many taxpayers will prefer.
    I want to stress that the IRS sees the professional return 
preparer community as a strong ally in our efforts to boost 
overall service and compliance. This program is all about 
inclusion and leveraging the return preparer community as a 
    Many people are surprised to discover that, despite the 
fact that paying taxes is one of the largest financial 
transactions that the average American family has each year, 
there have been no basic competency requirements, and little 
oversight for paid tax return preparers who are not attorneys, 
enrolled agents, or certified public accountants. Practically 
anyone can prepare a federal tax return for any other person 
for a fee.
    Through the return preparer program, the IRS wants to 
strengthen its partnerships with tax practitioners, tax return 
preparers, and other third parties to ensure effective tax 
administration. In addition, we want to ensure all of these 
participants have a minimal level of competency, and adhere to 
professional standards.
    In implementing the tax return preparer program, we have 
worked closely with stakeholders every step of the way, and we 
plan to continue this practice, going forward. At each stage of 
the process, from the initial review, which included three 
public hearings and about which we received more than 500 
public comments, to the implementation of subsequent 
requirements which we have discussed with hundreds of 
stakeholders in meetings and public sessions, we have been 
committed to engaging with our stakeholders, listening to their 
concerns and suggestions, and making appropriate changes to our 
plans, in light of their feedback.
    Supporting this approach is the staged implementation 
process we have adopted. In September of 2010 the IRS launched 
phase one by issuing regulations requiring paid return 
preparers to register with the IRS, and to obtain a preparer 
tax identification number or PTIN. As a result of our wide-
ranging outreach and education program, we have registered over 
717,000 return preparers to date. More than an identification 
number, the PTIN registration process gives the IRS an 
important and better line of sight into the return preparer 
community than we have ever had before. We can leverage that 
information to help better analyze trends, spot anomalies, and 
potentially detect fraud.
    The PTIN process will also help the IRS build, in several 
years, a publicly-accessible database of those registered. This 
is an extremely important tool for consumers, as they will be 
able to search that database to ensure that their preparer is 
registered. And it will make it easier for everyone to find and 
track return preparers.
    As described in my written testimony, the next phase of the 
program involves background checks, competency testing, and the 
annual completion of 15 hours of continuing education for many 
paid return preparers. We will begin rolling out parts of the 
program later this year, and on into 2012. As I mentioned 
above, we are seeking public input as we conduct this 
implementation. In fact, we have issued formal requests for 
public comment on both testing and continuing education. We 
have received hundreds of responses that will help guide our 
    Mr. Chairman, in conclusion, the tax return preparer 
program strengthens the IRS's partnerships with tax 
practitioners who are already registered and regulated and 
tested, while ensuring that all return preparers are serving 
the American public well. This is a point of leverage where the 
IRS can maximize the use of our resources, while tapping into 
the experience, specialized knowledge, infrastructure, 
technology, and activities of other players in the tax system, 
and make them an integral part of our service and compliance 
    [The prepared statement of Mr. Williams follows:]

    Chairman BOUSTANY. Thank you, Mr. Williams.
    Mr. White, you may proceed.


    Mr. WHITE. Thank you, Mr. Chairman, Ranking Member Lewis, 
and Members of the Subcommittee. I am pleased to be here to 
discuss paid preparer regulation, and how it might improve our 
tax system.
    As you stated, Mr. Chairman, paid preparers are one of the 
cornerstones of tax administration in this country. They 
prepare 60 percent of returns. Many taxpayers no longer 
interact directly with IRS, they turn to preparers for answers 
to questions and assistance filing. Today I will discuss IRS's 
implementation of paid preparer regulation, and how IRS might 
leverage it to improve service to taxpayers and the accuracy of 
their returns.
    But first, some background on paid preparer performance. In 
2002, we found that as many as 2.2 million individual taxpayers 
likely overpaid their taxes by about $1 billion by not 
itemizing their deductions. About half making this mistake used 
a paid preparer. While it is hard to know whether the taxpayer 
or the preparer was responsible, it raised questions about 
preparer performance.
    In 2006 we went undercover and had 19 tax returns prepared 
for a hypothetic plumber and working mother. All 19 had errors: 
two had our hypothetical taxpayers overpaying by about $1,500; 
and five of them underpaying by almost $2,000 each.
    In 2008 we studied Oregon, one of 2 states to regulate paid 
preparers. While we could not provide causation, returns 
prepared by Oregon preparers were more accurate than the 
national average.
    In 2009 IRS recommended registration of paid preparers, 
competency testing, and continuing education, and holding all 
preparers to standards of practice.
    Now, I will discuss IRS's implementation of the 
recommendations. This year, IRS required that all paid 
preparers register and get a preparer tax ID number, or PTIN. 
Even this seemingly modest step has benefits. It will give IRS 
a more accurate count of the number of paid preparers. As of 
this month, as Mr. Williams just said, IRS says 717,000 paid 
preparers have registered. IRS has a proposed time line for the 
other new requirements. Next is competency testing. It will 
start later this year, with current preparers having until the 
end of 2013 to pass the test.
    Initially, IRS is using a soft touch to enforce the new 
requirements, encouraging preparers to register with outreach 
and education. This month, the IRS began notifying about 
100,000 paid preparers who signed tax returns but did not use a 
PTIN about how to get a PTIN. IRS is planning to get tougher on 
preparers who do not comply. For example, IRS said it will send 
letters to taxpayers whose returns were not signed by the 
apparent preparer. The letter will explain how to file a 
complaint about unregistered preparers, and choose a preparer 
who is complying.
    Now I want to discuss the ultimate goal of preparer 
regulation. The goal is to leverage the paid preparer community 
to: first, help taxpayers file more accurate tax returns, so 
taxpayers neither underpay nor overpay their taxes; and second, 
to reduce the burden on taxpayers by reducing confusion, and 
facilitating filing.
    To leverage the paid preparer community, several actions by 
IRS are necessary. One is research. We have consistently 
stressed the importance of IRS conducting research to identify 
areas of non-compliance, and test strategies for improving 
compliance. The idea is to have a continual feedback loop, 
where IRS learns about what is effective or not, modifies its 
approach accordingly, does more research, and so on. To its 
credit, IRS has just such a framework in mind for paid preparer 
regulation. It includes developing a comprehensive database on 
preparers, and the tax returns they prepare, and then analyzing 
it to develop and test strategies for improving the accuracy of 
    Likewise, IRS wants to measure the effects of the new 
strategy--of the new testing and continuing education 
requirements on tax return accuracy. However, as of our March 
report, IRS had not documented its research and assessment 
framework. This matters, because one of the other actions 
necessary to successfully leverage paid preparer regulation is 
buy-in from preparers. Without a documented framework, it is 
not easy for preparers who bear the cost of the regulations to 
tell what they are supposed to be buying into. Some members and 
officials of paid preparer organizations told us the new 
requirements will only be worthwhile if they result in improved 
compliance. In our report we recommended that IRS document its 
framework, and IRS agreed.
    I will close by noting the potential for paid preparer 
regulation to be part of a fundamental rethinking of IRS's 
approach to assisting taxpayers and ensuring compliance. 
Combined with other efforts such as systems modernization, more 
pre-refund compliance checks, and innovative uses of 
information returns, paid preparer regulation could help 
improve taxpayer compliance, while reducing both the compliance 
burden on taxpayers and IRS's costs.
    That concludes my statement, and I would be happy to answer 
    [The prepared statement of Mr. White follows:]

    Chairman BOUSTANY. Thank you, Mr. White. Mr. Williams, when 
you were designing the paid preparer program, did you look at 
any existing programs? We are aware that Oregon--and I think 
Mr. White referenced the Oregon program and improved results in 
California, as a result of their plan. There are companies that 
have worked in this area, and have fairly extensive plans.
    Can you describe to what extent you looked at these 
existing plans?
    Mr. WILLIAMS. Yes, Mr. Chairman, we did. And, in fact, we 
conducted a six-month review of not only what was going on in 
states, we did a small look at other countries.
    We had three sets of national hearings, which--we heard 
specifically from Oregon and California. We heard from tax 
practitioners, big companies, small companies. We talked to 
consumer groups. We sought public comment, we got over 500 
public comments that gave us insights into the way in which 
other states had done it, what had worked, what had not. And we 
built and designed the program, based on that input and 
    Chairman BOUSTANY. Thank you. Did you consider, or give any 
consideration to certifying some of these programs? In other 
words, instead of having one plan coming out of your office 
here in Washington, saying, ``Okay, well, Oregon plan works 
pretty well,'' or take, for instance a company like H&R Block, 
which has a very extensive education program and competency 
testing. I think there are some differences, from what I 
understand, in the way they do background checks.
    But was there any consideration over at IRS given to 
certifying those existing programs, to avoid some duplication 
and perhaps added cost?
    Mr. WILLIAMS. Interestingly, we did talk both to H&R Block, 
we did talk to the folks from Oregon, and others. I have 
probably had requests for 15 to 20 different, as you called 
them, certifications.
    And as I started to accrue each and every one of them, I 
realized that we would end up with a patchwork system, where 
some people would be covered under one standard, and others 
would be covered under another. And our concern was that there 
could be consumer confusion, as a result of trying to 
understand which certification mattered. And tax professionals 
might, as well.
    We have talked to both the folks you've mentioned, as well 
as others, and suggested that we will work with them to ensure 
that the standards and the minimal competency testing on which 
we are working is a framework on which they can build. So, to 
the extent that they are developing their own testing, the 
federal standard would be the base upon which they could build 
additional changes, going forward.
    Chairman BOUSTANY. I thank you. Mr. White, can you tell us 
more about how GAO conducted the study, where you referenced 
the errors that were found? And were they in favor of the tax 
preparer or the taxpayer? Give us a little more detail on that.
    Mr. WHITE. It was--as I said, we created hypothetical 
taxpayers. We have got a group in our office that can go under 
cover. And so they represented these taxpayers. One, as I said, 
was a plumber. The plumber had wage income working for another 
plumbing contractor, and then also worked some on his own, and 
so had self-employment income. We reported all of that to the 
    Our other case was a hypothetical working mother. She had 
two kids, she had a job, some wage income from that. But she 
was fairly low-income, and eligible for the earned income 
credit. We laid out all the facts to the preparers. We picked 
19. They were from various large chains. And, as I said, in all 
19 cases there were some mistakes. In a number of those cases 
the mistakes were substantial. Some favored the government, 
some favored the taxpayer. They were--so the underpayments were 
as large as $2,000. The overpayments, in 2 different cases, 
were over $1,500.
    Chairman BOUSTANY. Thank you. For both of you, one final 
question that I have. Two of the most problematic types of paid 
preparers are ghost preparers--those who are paid to prepare 
returns, but do not indicate so on the return, itself--and then 
also what have been called fly-by-night preparers, who may open 
up shop for a month out of the year, and then they're gone once 
the questions arise about the return or the taxpayers audited.
    I know it is early in the process, and this is a 
preliminary hearing to sort of gauge how things are going, and 
we are going to have to do more to benchmark success. Can both 
of you give us some indication of how we are going to address 
those two problems?
    Mr. WHITE. One key, Mr. Chairman, is an ongoing process of 
research. You are absolutely correct. Right now the service 
does not have a complete picture of how they can leverage paid 
preparers to improve service to taxpayers and compliance by 
taxpayers by working through preparers. And it's not a bad 
thing that they don't have a plan right now for that.
    What they need to do is what they have said they are going 
to be doing, putting together a comprehensive database that 
will include information about preparers, combine that with 
information about the tax return those preparers prepare. And 
that is one vehicle. There are others, as well.
    But they need to learn from this sort of data about what 
the nature of the problem is, develop some strategies, and then 
collect data, monitor the effectiveness of those strategies, 
and modify the strategies as they learn more about what is 
working and what is not working. There are going to be some 
surprises going forward on this, and so it is going to be a 
continual process of learning and adjusting.
    And it is going to cost some money. It is going to require 
an investment in this research that I am talking about.
    Chairman BOUSTANY. The two states I referenced earlier, 
that both of you have referenced as well, California and 
Oregon, is there some experience there that we can learn from?
    Mr. WHITE. Well, yes, there is. In the case of Oregon, we 
looked at Oregon, and it was a challenge to determine exactly 
what the impact of the Oregon regulatory process was on 
taxpayer compliance, precisely because Oregon, early on, had 
not collected good baseline data for comparison.
    And so, what we are looking for the Service to be doing, 
for IRS to be doing now, is collecting better baseline data. 
That is part of why we think it is important to document the 
framework they are using, so that the research community has an 
idea, and can contribute to thinking about the sort of analysis 
of the program that needs to be done, and that then tells you 
what kind of data needs to be collected now, so that you will 
be ready to do that analysis.
    Chairman BOUSTANY. I thank you. Mr. Williams, do you want 
to add----
    Mr. WILLIAMS. If I could follow up on that just a little, 
because that is exactly where we are going with it. We are not 
jumping to conclusions about the quickest and easiest way to 
deal with problematic preparers.
    You identified two categories. The first, ghost preparers--
in other words, folks who do the returns, but hand them back to 
the client, and the client signs, saying they did it 
themselves, those are probably going to be the most 
    We are actually testing, this filing season, some 
statistical methods for identifying those preparers. Now, we 
may not be able to identify exactly who prepared the return, 
but we may be able to identify returns that look like they were 
done by preparers, in which case we are looking at, again, 
testing strategies to communicate with the taxpayers who had 
their returns done by these folks, to say, ``Hey, did you know 
your preparer isn't registered, doesn't follow the system,'' to 
see if we can tease out the folks that are in that ghost 
preparer category.
    I think there is a broader thing to remember, though, in 
that as we move through this, and we are doing it in a measured 
way, there are a lot of professionals out there in their small 
businesses who are struggling to make sure that they understand 
what we are requiring them to do, and their requirements. And 
we need to be very sensitive to them, as we move into the field 
of trying to enforce and get the compliance dead on.
    And so, that is why following GAO's recommendation, what we 
have been planning, we are going to do tests to figure out what 
works and what is most effective and most cost effective to 
address those issues.
    Chairman BOUSTANY. I thank you. And now I turn to the 
ranking member of the committee, Mr. Lewis.
    Mr. LEWIS. Thank you very much, Mr. Chairman. Mr. Williams, 
I am concerned that the taxpayers we are trying to protect may 
not know about the new requirements. How will the IRS educate 
these taxpayers?
    Mr. WILLIAMS. Mr. Lewis, that is an excellent point. And in 
fact, at this point, most taxpayers do not know what we are 
doing, for a very specific reason. At this point, all that we 
have done is made sure that people who are preparing returns 
have a number. And that doesn't help taxpayers understand very 
much about who they are going to. What we are trying to do is 
get the preparers in the system first, make sure they have 
taken the competency exams we have talked about, and are doing 
the continuing education.
    And we intend, as more preparers actually do that, to 
launch a nationwide campaign to educate taxpayers about who is 
available, what it means to be a registered tax return 
preparer, and to understand that they need to go to someone who 
is either a registered preparer, a CPA, an attorney, or an 
enrolled agent to support them, and ensure that they get their 
taxes done right.
    It is just that today we are just starting the program, and 
I don't want taxpayers to be looking for more than is there, 
because it is not there yet.
    Mr. LEWIS. Mr. Williams, GAO has said that a database of 
paid preparers would be available in 2014. Why will it take 
three years?
    Mr. WILLIAMS. It is--it will take until the end of 2013 or 
2014 before we make that available, and here is why. We have 
about 700,000-plus people who have just registered with us. 
Many of them are CPAs and attorneys and enrolled agents, but 
somewhere between 400,000 and 500,000 of them are unenrolled 
preparers who are going to have to take that test and go 
through the background checks and so on. We want to give them 
time to do it. These are small businesses, these are people who 
may have been in practice for a number of years.
    I don't know about you, but most people sort of remember 
the last time they had to take a big test. And we are very 
concerned that there is anxiety about test-taking, and we want 
to give them a chance to take that test, to prepare for it, and 
give them some time.
    So, for the next two years, they will have the flexibility 
to take the test and repeat it, if necessary. We are going to 
work with the community to make sure that they have educational 
opportunities and give them some time before we start 
publicizing and pushing the full database. We want to get them 
into the database first.
    Mr. LEWIS. All right. Mr. Williams, a witness on the next 
panel recommends that the IRS establish a central telephone 
number and database for complaints. What are your thoughts on 
this recommendation?
    Mr. WILLIAMS. Actually, we are doing that now. We are 
developing what I will call a referral process. I go to forums 
around the country and talk to thousands of tax preparers. I 
was just at one yesterday in Dallas. And they will come up to 
me and say, you know, ``I know this person down the street who 
is working out of his garage,'' or, ``I am cleaning up after--
he does returns, and then the clients have problems.''
    So what we are developing to capture that is a system of 
collecting that information, putting it in a central place, and 
actually starting to build a process to identify and address 
each of those concerns directly, because we think it is 
important. Those are one of our best sources of referrals, and 
that is a good place to start, if there are problems.
    Mr. LEWIS. Yes, thank you very much. Now, Mr. White, how 
would you grade the IRS on the preparer plan or strategy so 
    Mr. WHITE. What we have said in our report is that they 
have done a pretty good job implementing this so far. We had 
one recommendation, and that was that they actually document 
this framework. And I call it a framework, rather than a 
detailed plan right now, because this framework is going to 
evolve over time.
    But we think it is important that that be documented, 
because one of the keys to success of this whole effort is paid 
preparer buy-in. IRS is looking to work with paid preparers to 
help taxpayers get better assistance than they've gotten in the 
past, and to file more accurate tax returns. So it is a matter 
of working with them, enlisting their help in this. That is the 
ultimate goal of this.
    Mr. LEWIS. Mr. White, your testimony noted that the IRS 
planned to make available a database of paid preparers in 2014. 
This seems so far away. Is this a reasonable time line?
    Mr. WHITE. I think the way Mr. Williams described it is 
reasonable. I guess what I would add to that is one thing--
since this database is going to be available to the public, and 
the intent is it be used by the public to find preparers who 
are registered, it is very important that it be user friendly.
    And so, I think testing the database, testing how the 
access to the database works, monitoring the way it is used, 
once it is set up, to determine whether, in fact, it is user 
friendly, is as user friendly as it could be.
    Mr. LEWIS. Thank you very much. Thank you, Mr. Chairman.
    Chairman BOUSTANY. I thank the gentleman. Ms. Jenkins, you 
are recognized.
    Ms. JENKINS. Thank you, Mr. Chairman. Thank you for being 
    In your written testimony, Mr. Williams, you stated that 
the IRS sent out more than 10,000 letters to tax preparers with 
completed returns containing common errors. The letter included 
an enclosure that reminded them of their responsibility to 
prepare accurate returns. The IRS also personally visited 2,500 
of the preparers who had received the letter.
    First of all, can you share with us what some of the common 
errors were that you found on the tax return? Secondly, has the 
IRS set any benchmarks for improvement regarding those common 
errors that were currently found? And then, finally, what sort 
of expectations might you have for this program to accomplish 
in regards to these types of common errors?
    Mr. WILLIAMS. Sure. So, a couple things. First of all the 
most common error, and the one on which we focus a great deal 
of our effort, is the earned income credit. As you've heard 
probably in other hearings, and mentioned earlier, there is a 
large, erroneous payment problem with the earned income tax 
credit. And it is the result of a variety of things. It is 
people, taxpayers themselves, who don't understand the rules 
and are not sure how to prepare, or their preparers, to do 
this. It is a result of preparers not understanding the rules, 
and not being precise in following the requirements.
    And so, much of what we see is an erroneous claim for the 
earned income credit. And so one of the targets, in terms of 
identifying preparers and those that we sent letters to, is 
exactly that kind of error, refundable credits, in particular.
    In terms of establishing benchmarks, the initial two years 
of doing those visits showed us that--we are building some data 
that tells us how well those preparers are doing. We are 
actually following them in subsequent years, to see how well 
they do with regard to the accuracy of the returns they prepare 
in the future. I think we are going to learn from that, whether 
there are better ways of identifying problematic kinds of 
    And you mentioned the visits, as well. Those visits take 
time. They can be intrusive. And my objective, using the data 
that we are going to get from the return preparer initiative, 
is to make sure that we are not visiting someone if a letter 
that reminds them they need to pay more attention to a 
particular area is sufficient to get them to improve their 
    In other words, we need to figure out the best way to 
encourage preparers to comply before we start knocking on their 
doors and doing some of the other more intrusive things that we 
can do to get their attention.
    Ms. JENKINS. Okay. One of my concerns with the 
implementation of this return preparer initiative are the 
compliance and administrative costs. And, as our chairman 
mentioned in his opening statements, according to the GAO, the 
new requirements are estimated at cost per payer as 51 to 77 
million, annually, in registration fees alone, and that didn't 
include, as he mentioned, the cost of compliance and the 
testing and the ongoing education requirements. That ranges 
from $20 to $300 per course.
    According to the March 2011 GAO report, the IRS is planning 
to conduct a first review of the PTIN registration user fee in 
the summer of 2012.
    So, for Mr. Williams, have you made any progress on the 
review, and can you share any results? Do you anticipate that 
you will be able to lower these costs? And what is your 
reasoning for requiring registration on an annual basis, rather 
than, perhaps, on an every-three-year.
    Mr. WILLIAMS. We have begun the review. We haven't 
finalized it. We are basically entering the first half of our 
second year in the program. I think it is premature to tell you 
that I can lower the fee. I can also tell you, though, that is 
our objective. We are very sensitive to imposing costs on small 
    The one thing to keep in mind, the PTIN designation in all 
of this actually attaches to the individual, not the business. 
So it becomes a credential that he or she may carry with him or 
her wherever they go. Our objective in all of this is to ensure 
that the program is funded at an appropriate level through the 
user fee.
    And I talk to preparers about this, because it means 
something that I don't think they have thought about, which is 
we owe them something for this service. We owe them service, we 
owe them a level playing field. So your discussion about 
compliance, I think is very important. When I talk to the small 
businesses who are doing preparer work, their concerns are that 
they have got competitors down the street from them who are not 
following the rules, who are preparing poor returns, hurting 
taxpayers, and that they are not on a level playing field.
    And so, one of our objectives with that user fee is to 
figure out the most cost-effective way to improve compliance 
with people who are either not complying with the rules, or 
among those who are, but are really not paying attention, 
figuring out cost-effective ways to get them to do better in 
their practice. And that is part of the experimentation and 
research that Mr. White was talking about, figuring out whether 
there is a way. I will give you one example.
    The continuing education requirement does impose some cost 
on preparers, but I can also see a scenario where one of the 
ways in which we might improve people's compliance--in other 
words, the accuracy of their returns--is saying, ``Hey, we have 
taken a look at some of your returns. You are having a problem 
in this area. Some of your continuing education should be 
directed to this kind of thing,'' so we don't have to impose 
penalties on those folks. We need to be looking at ways of 
getting them the right education to improve their service to 
the taxpayer.
    Ms. JENKINS. Okay, thank you. I yield back. Thank you, Mr. 
    Chairman BOUSTANY. Thank you. I know, Mr. Becerra, you have 
had an interest in this issue for quite a while, and you are 
recognized for questioning.
    Mr. BECERRA. Thank you, Mr. Chairman, and thank you for 
holding this hearing. I appreciate that very much. It is a 
follow-up on some good work that has been done in the past. And 
I would like to begin my five minutes by first recognizing and 
commending Commissioner Shulman and all the folks at the IRS, 
the professionals at the IRS. I also want to commend the folks 
at GAO who have made it possible for the IRS to work with you 
to try to figure out how to best navigate this.
    I think this was long overdue, but I appreciate the way 
that you have handled this, more than anything else because it 
seems like most of the paid tax preparer community is on board, 
which is not typically the case when it comes to wanting to 
deal with the IRS. And so I think you are doing something very 
good here, and not just good, but right. And I hope that you 
continue moving methodically but with all due speed, so that we 
can implement regulations that most Americans would say they 
wish they had in place--or we had had in place for quite some 
    I can't tell you how many Americans have come up to me in 
the past and said, ``You know how much money I lost because I 
went to this guy, and he said he could prepare my returns, and 
I was going to get X amount of money back, and I was really 
happy, low and behold, then the IRS starts auditing me?'' It 
just goes on and on. And these are folks who are middle class, 
modest-income families for whom a $500 bill to have these forms 
prepared was significant, but then to have the IRS breathing 
down their neck because they didn't do it right, is even worse. 
So, thank you very much for what you are doing.
    Mr. White, let me begin by asking a couple questions. I 
believe the IRS had initially estimated that there would be 
somewhere between 900,000 to 1.2 million paid tax preparers in 
this universe of folks who did tax returns. So far we have 
gotten over 700,000 preparers who have come forward and 
registered. Is it your belief that there is still a universe, a 
significant universe of people out there, who are performing 
tax preparer services for money, who have not yet come forward 
to register?
    Mr. WHITE. Yes, there are. I don't know how many. One of 
the problems in this area, before this regulatory effort 
started, was IRS did not have a count of the number of paid 
preparers out there. They simply didn't know. People didn't 
have to use a unique identifying number when they signed a tax 
return. They could use a variety of numbers.
    So, this gives them more information about the preparer 
community than ever in the past. And it is not just the number 
that is important; it is really information about the types of 
preparers, how they comply, how they fill out returns, the 
accuracy of those returns. Part of the vision for the future 
here, I think, is getting to a point where IRS, almost in real 
time, by analyzing the data coming in, would be able to 
identify preparers that are preparing inaccurate returns, 
communicate with them during the filing season, and get the 
errors fixed, so that more taxpayers don't run into the sorts 
of problems you have identified.
    Because you are exactly right. If you underpay your taxes, 
IRS is going to come after you and charge you penalties, and 
you are in worse shape.
    Mr. BECERRA. Yes. And so, what we want any American 
taxpayer or any consumer who is watching or listening to this 
hearing to understand is that not every person who professes to 
be a preparer of tax returns with the talent and the experience 
to do it has yet come forward to the IRS to identify 
    And so, as Mr. Williams identified them as ghost tax 
preparers, I would call them black marketeer tax preparers, 
because they have now had a chance to come forward as many of 
those professionals--and I applaud each and every one of those 
700,000-plus professionals who have stepped forward and 
registered, because essentially what they are saying is, ``I am 
willing to live by this new regime, to make sure that consumers 
understand that I came forward before the IRS to tell them I am 
going to hold myself out as someone who can prepare your 
returns and deserve to be paid to do this.''
    And so, for all the 700,000-plus who come forward, I hope 
we can continue to move diligently to get the other folks who 
want to participate and maybe are not totally familiar with 
this, or maybe made a mistake or omission when they first tried 
to register and that is why they are not yet incorporated into 
    I hope we also do some work, as was based on the questions 
that were asked earlier by the chairman and the ranking member, 
on educating the consumers so that they understand what is 
going on here. We are trying to help them be able to be better 
shoppers of those who are going to give them a professional 
    I often cite the case of notary publics. I am from Los 
Angeles. There are lots of immigrants in LA. In a lot of 
countries, a notary public is tantamount to an attorney. And so 
they can perform some of the same services that attorneys do in 
their home countries. They come here, they see these notary 
publics, they hold themselves out as being able to provide 
legal services. They pay these notary publics a ton of money. 
Before you know it, these individuals find out that these 
notaries couldn't do anything for them, but they are out 
thousands of dollars.
    That notary public scam that goes on by that small universe 
of fraudulent notary publics should not be what we find happens 
here with paid preparers. We have had a lot of good paid 
preparers who have come forward. And they, as professionals, 
deserve to know that we, as the Federal Government, the IRS, 
will move forward diligently to make sure that we respect those 
who came forward as professionals, and bring in as many as we 
can as quickly as possible who want to be professionals, but 
then go after with a vengeance those who are the black market 
    Mr. Chairman, thank you for the time.
    Chairman BOUSTANY. I thank the gentleman. Mr. Paulsen, you 
are recognized.
    Mr. PAULSEN. Thank you Mr. Chairman, also, for holding the 
    I want to follow up a little bit on that line of 
questioning, just to ask Mr. Williams, you know, will taxpayers 
be able to look up a particular PTIN holder's history? I mean 
is that something a taxpayer is going to be able to look up 
    For example, let's say that Return Preparer A has been 
fired from H&R Block or some company for stealing taxpayer 
information, or something similarly egregious. Does the 
employer have a duty at that point to inform the IRS? Or will 
the IRS do anything about it? And will taxpayers be able to 
find out that information from an accessibility standpoint?
    Mr. WILLIAMS. Mr. Paulsen, we will make available through 
this database the information that we can make public about 
preparers that we possess. And, by the way, when I talk about 
this database, it will include the registered return preparers 
we are talking about here. But we also intend to list CPAs, 
attorneys, and enrolled agents who want to be part of that, and 
we are going to work very closely with those communities, to 
make sure that taxpayers understand the differences among them.
    What we will not have access to--and I am not sure that we 
could legally put on the database--would be information about 
disputes between an employee and an employer. That would not be 
something that we would know about.
    What we would know about, though, is if there were problems 
with the tax preparer's work, and if that preparer had been 
disciplined. And if that preparer had been disciplined in an 
ethical sense, under the office of professional responsibility 
which oversees ethical practice, that is public information. It 
occurs today with regard to CPAs, attorneys, and enrolled 
agents. We actually publish that. And that information would 
appear on the database, as well.
    Mr. PAULSEN. Okay. And then, in terms of the accessibility 
of the information and making it available to the public, it is 
my understanding--and I don't think we covered this yet, Mr. 
Chairman--but the IRS plans to have information on those that 
have registered for the PTINs available online later this year. 
Can you give us some more specifics?
    Mr. WILLIAMS. Not later this year.
    Mr. PAULSEN. So is that going to 2014?
    Mr. WILLIAMS. That is going to be the one that we will 
deploy toward the end of 2013.
    Mr. PAULSEN. Okay.
    Mr. WILLIAMS. We will have a full registry you can look up.
    Mr. PAULSEN. Can you give us some more specifics on what 
will be on that website? For example, is it going to list just 
the name, the business, the address, the--and the profession, 
whether a CPA, they're an attorney, they're an enrolled agent?
    Mr. WILLIAMS. You just covered most of what is going to be 
on the database.
    Mr. PAULSEN. Okay.
    Mr. WILLIAMS. In other words, the name, the contact 
information that they want us to provide, the credential that 
they have received, and we will also spend some time on that 
database having an explanation of what it means to be a 
registered return preparer, a CPA, an enrolled agent, or an 
attorney, so that folks understand the distinctions.
    If there has been a disciplinary proceeding that is public, 
that will also be noted on the database. So it will be a place 
where you could look up someone in your area, if you wanted, so 
you will be able to search it by geography, for example, or you 
may want to search by credential. It isn't going to provide 
intimate details about the preparer's practice, but basically 
that they have been admitted, and here is how you can contact 
    Mr. PAULSEN. So you anticipate a search function, as you 
    Mr. WILLIAMS. Absolutely.
    Mr. PAULSEN. Okay. And you wouldn't need the name of the 
return preparer to run a search? You could search it by 
    Mr. WILLIAMS. That is right. If you had just moved to 
someplace and you wanted to figure out, ``I need someone to 
prepare my taxes,'' you could look at somebody in that 
jurisdiction, or even that zip code, for example.
    Mr. PAULSEN. Okay. And, Mr. White, let me ask this, because 
I think the subcommittee in the past has explored the Tax 
Code's growing complexity. And certainly the full committee has 
brought up this subject, as well, in terms of the complexity 
and fairness, simplicity.
    But the Taxpayer's Advocate has testified before the 
committee just that there have been something like 4,400-plus 
tax law changes, just in the last 10 years alone, and Americans 
spent an estimated $163 billion trying to comply with the Tax 
Code. Would you agree that the code's complexity, overall, is 
what is playing a role in some of the problems that the paid 
return preparer program is designed to address in the first 
    Mr. WHITE. Yes. That is a point we have made repeatedly, 
the complexity of the Tax Code, and particularly changes to the 
Tax Code. When there is a new provision, that is something that 
taxpayers then have to relearn, and preparers have to relearn.
    But it confuses people about what their tax obligations 
are, and that can lead to unintentional non-compliance. 
Complexity can also help hide intentional non-compliance, 
because it is harder to find, with the Tax Code and tax forms 
being as complex as they are.
    Mr. PAULSEN. Well, Mr. Chairman, I think this just goes to 
the heart of the discussion we are having today is, you know, 
we will often, I think, have a review of some of these new 
layers of programs that get added on.
    But hopefully the committee is going to further address the 
complexity issue, so that individuals that end up relying on 
paid preparers or tax preparing software won't have to do that, 
and we can make it a lot simpler and a lot more confident, and 
then people won't have to worry about the black marketeers or 
the ghost writers, et cetera.
    So, with that, I yield back.
    Chairman BOUSTANY. I thank the gentleman. We--as you know, 
we are doing tax reform. And the complexity of the code is a 
huge issue. And, as the IRS comes to us for more resources and 
the complexity grows, at some point we have to reach a balance 
on all this.
    Mr. Marchant, you are recognized.
    Mr. MARCHANT. Thank you, Mr. Chairman. One of my large 
concerns has been in the past that we have had testimony before 
the committee that in the last few years alone $106 billion has 
been refunded to taxpayers, and they were refunded and they 
were improper refunds. Money was claimed, it was returned. We 
have heard that a big amount of those mistakes were done by tax 
preparers. And many of the false claims were actually, in my 
belief, instigated by the preparer, and not the taxpayer.
    Is there--has there been any kind of a database developed 
where you are looking at chronic--where you are looking at 
people that have been--let's take the earned income tax credit. 
Are you tracing back farther than just the person who was 
affected by the return, and are you aware, in the case of 
fraud, where you are going after the taxpayer for fraud, is 
there a further step being taken? Are you aware of who the 
preparer is?
    Mr. WILLIAMS. In fact, yes. We actually have a whole 
program. We were talking earlier about the letters and the 
visits that we have been doing for the preparer community. And 
part of that has actually been driven by our experience at 
identifying the preparers that are perpetuating bad earned 
income credit returns.
    We literally will identify a set of people--taxpayers who 
have filed returns that are erroneous. And then you look at 
them, and you realize they were all done by the same preparer. 
Or, in the case of ghost preparers, as we have been talking 
about earlier, no one has signed the return, but there are 
enough patterns in them that suggest they were all done by the 
same person. And so we actually will, at that point, try and 
zero in on that preparer, and actually address the fraud that 
they are perpetuating.
    That has been going on for a couple of years. But I think 
with this program we will have a lot more information to figure 
out who is doing what, how much they are doing, and where they 
are, and be better at effectuating compliance to help ratchet 
down on those erroneous payments you were talking about.
    Mr. MARCHANT. Is the $50 fine--is that the maximum fine for 
anyone that is caught----
    Mr. WILLIAMS. No. No, no, no. First of all, the fine is 
levied by returns. So it adds up over time. It is interesting 
you had mentioned the penalty issue, because we are looking at 
penalties across the board. We don't think that is the first 
solution to every problem. But in cases like this, the National 
Taxpayer Advocate has recommended more significant penalties 
with regard to these kinds of erroneous fraudulent claims, and 
we are actually considering that, as well.
    Mr. MARCHANT. And have you had discussions with--I am sure 
there are some--have you had any discussions about possible 
criminal penalties, or charges? And have there ever been 
criminal penalties or charges brought against a preparer----
    Mr. WILLIAMS. Absolutely.
    Mr. MARCHANT [continuing]. That has an operation going?
    Mr. WILLIAMS. Absolutely. The Criminal Investigations 
division at the IRS actually does investigate and put together 
cases that are presented to the Department of Justice. And we 
do shut down preparers, through the criminal process, for 
perpetuating fraud.
    Mr. MARCHANT. I would suggest to you that those may have 
been too low-profile, and in some instances a higher-profile 
case that the media might pick up in certain areas--Congressman 
Becerra and I have many of the same concerns. I have many ghost 
operations in my district, people that are literally going out 
and grabbing people off the sidewalk and say, ``Hey, do you 
know I can get you this much money? Sign here.'' They give half 
of it back, and these are criminal operations.
    And--but I don't know that I have ever picked up the Dallas 
Morning News and read that someone was being prosecuted. So I 
would just suggest to you that if you get a case like that, it 
might be helpful to incorporate the media into getting the word 
out among these preparers that there is a penalty to pay for 
    And I appreciate your efforts in this kind of enforcement. 
Thank you.
    Mr. WILLIAMS. Thanks.
    Chairman BOUSTANY. I thank the gentleman. Mr. Reed, you are 
recognized for questioning.
    Mr. REED. Thank you, Mr. Chairman. Thank you for the 
testimony today, to the witnesses.
    I come from a district in New York. A lot of people think 
New York is a big city all the way across the state, but the 
part of my district--my part of New York is a rural area. We 
are a agricultural-based, high-tech-centered area. But a lot of 
rural space there.
    So, I am interested in your thoughts from either of you as 
to how to address the logistics of complying with the testing 
and the locations, the physical location. How are we going to 
address the rural areas to make sure that this requirement is 
not an excessive burden on them?
    Mr. WILLIAMS. Yes, that is actually a great question, 
because it has been one of our concerns. We contracted with a 
vendor to deliver the testing that will open with 270 sites 
around the country. We have talked to them about looking at the 
population distribution to understand where we can place the 
    We have also informed them that if we start to see areas--
yours is not the only one; I went to high school in Montana, 
and of course, you know, there are a couple big cities and then 
lots of space in between--there are people in those areas who 
need access to the testing, and we need to make sure that if we 
can't get them, if it is unreasonable, that we find another way 
to deliver it.
    For example, a mobile van, something that will enable 
people to take those tests in a reasonable way.
    One of the other things we are trying to do, because people 
have life circumstances, even if travel is a bit of an issue, 
but they also have other things going on, as I mentioned 
before, is to give people enough time to take the test. So, for 
anybody who is in our system now who has registered since the 
beginning--the end of last year, they will have two years to 
take and pass the exam. So that if there is a way to work it 
into their schedule, or something like that, they will be able 
to do it.
    And we are going to monitor this very closely, to make sure 
that if people are having problems getting access in your 
district or in other areas, that we find a way to address that.
    Mr. REED. Has there been any discussions or thoughts about 
using technology, electronic, Internet, any--that type of 
    Mr. WILLIAMS. Initially, that was my solution to the whole 
thing. We will do it online, and you could do it from home.
    The problem we have discovered--and there is a whole field 
of testing out there that I wasn't aware of before I started 
this--is ensuring that the individual who is on the other end 
of that transaction is actually who they say they are.
    Mr. REED. Sure.
    Mr. WILLIAMS. We work with a company called ProMetric. They 
administer a lot of different kinds of exams. They administer 
between 9 million and 11 million nationally and internationally 
every year, and they do it for a variety of different people. 
And they have given us some insights into how test-taking can 
be compromised, I think would be the nice way to put it.
    Mr. REED. Okay.
    Mr. WILLIAMS. And so, they encouraged us not to go on the 
online method. It would help in the circumstance you are 
describing, but would also leave us open to a lot of 
    Mr. REED. Abuse. Okay. Thank you. With that, I yield back.
    Chairman BOUSTANY. I thank the gentleman. I would like to 
thank you both for being here today, for your testimony, for 
the work you are doing to make this program successful. Please 
be advised that Members may have additional questions that they 
will submit, which will be part of the record, as well as any 
answers you provide.
    So, thank you, gentlemen, and we will now proceed with our 
second panel of witnesses.
    Chairman BOUSTANY. Welcome to all of you, and thank you for 
being here today. I will introduce our panel, our second panel.
    First we have Ms. Kathy Pickering, who is vice president of 
government relations, and executive director of the Tax 
Institute at H&R Block.
    Secondly, we have Ms. Patricia Thompson, who is chair of 
the tax executive committee for the American Institute of 
Certified Public Accountants.
    Thirdly, Mr. Paul Cinquemani, who is director of member 
services, business development, and government relations for 
the National Association of Tax Professionals.
    Next, Mr. Lonnie Gary, enrolled agent in USTCP, chair for 
the National Association of Enrolled Agents, government 
relations committee.
    And Mr. David Rothstein, a researcher for Policy Matters 
Ohio, and also a research fellow at the New America Foundation. 
Again, I want to thank all of you for being here today. You 
will each have five minutes to present your testimony with your 
full written testimony submitted for the record.
    Ms. Pickering, you may begin.

                     KANSAS CITY, MISSOURI

    Ms. PICKERING. Chairman Boustany, Ranking Member Lewis, and 
Members of the Subcommittee on Oversight, thank you for 
inviting H&R Block to present our views on the IRS return 
preparer initiative.
    We commend David Williams and the IRS return preparer 
program office for their efforts to create an efficient and 
effective regulatory program for the tax preparation industry. 
We support the IRS in this initiative. In my comments today I 
will provide the context for why the issue of tax preparer 
regulation is vital to H&R Block, and address our concerns and 
our recommendations for improving this important regulatory 
    H&R Block is the leading provider of tax preparation 
services. We have about 97,000 tax preparers in 11,000 offices, 
40 percent of which are small business-owned. Many are located 
in rural areas. While we do support the overarching goals of 
the VPI program, we have a few concerns.
    First, the competency exam has created redundancies and 
unnecessary costs for H&R Block, totaling over $20 million. H&R 
Block's process for training and quality control has been the 
industry gold standard for 39 years. Our tax preparers, at a 
minimum, must take our 84-hour basic income tax course, receive 
a passing grade, pass a criminal background check, and complete 
at least 24 hours of continuing education each year. The IRS 
program will only require 15 hours of continuing education 
    It is important to note that when Congress debated the 
Taxpayer Bill of Rights of 2008, there was bipartisan support 
for H&R Block's competency testing to be certified for IRS 
purposes. H&R Block strongly recommends that the IRS develop a 
program review process to certify proven programs like ours, or 
those in California and Oregon.
    Our second concern is that compliance, enforcement, and 
measurement programs have yet to be defined. Without this, it 
will be impossible to know which actions did or did not result 
in improved compliance. Given the considerable costs of 
implementing the return preparer program, we hope to see that 
the benefits of this program are commensurate with the expense.
    Finally, H&R Block would like to work with the IRS to 
create a group or mass registration renewal and payment 
process. A group process would save time and money for the IRS 
and tax preparers.
    In conclusion, I would like to thank you for the 
opportunity to provide H&R Block's perspective and 
recommendations. We commend the IRS for creating the return 
preparer program office. This was an important step in 
strengthening the relationship between the IRS and the tax 
preparation industry. David Williams's experience and 
leadership will ensure that the initiative is ultimately 
    Despite our concerns, we remain committed to the goals and 
objectives of the program. We look forward to continuing to 
work with the IRS, to raising the standards of professionalism 
and integrity in our industry, and we are confident that the 
American taxpayer and the tax administration system will 
benefit from our collective efforts. Thank you.
    [The prepared statement of Ms. Pickering follows:]

    Chairman BOUSTANY. Thank you, Ms. Pickering.
    Ms. Thompson, you may proceed.

                        WASHINGTON, D.C.

    Ms. THOMPSON. Good morning, Chairman, Ranking Member Lewis, 
and Members of the Subcommittee. My name is Pat Thompson. I am 
a CPA and chair of the AICPA Tax Executive Committee. I am also 
the partner at Piccerelli, Gilstein & Company, LLP, located in 
Providence, Rhode Island. Thank you for the opportunity to 
appear here today.
    It has been a year-and-a-half since the IRS released its 
report on the paid tax return preparer community. The AICPA has 
been a steadfast supporter of the IRS goal of enhancing 
compliance and elevating ethical conduct. Ensuring that tax 
return preparers are competent and ethical is critical to 
maintaining taxpayer confidence in our tax system. Indeed, 
these goals are consistent with the AICPA's own code of conduct 
and enforceable tax ethical standards.
    We believe the IRS should be commended for their efforts in 
the implementation of the return preparer program. 
Specifically, the IRS has devoted an unprecedented amount of 
time to listening to stakeholders' concerns and suggestions 
regarding the program, and made numerous changes and 
    Since the release of the report, and as the IRS has moved 
to implement its recommendation, the IRS--I'm sorry, the AICPA 
has expressed its concern regarding specific aspects of the 
    One concern we had was the initial proposal to subject non-
signing staff of CPA firms who are supervised by CPAs to the 
entire regulatory regime applicable to registered tax return 
preparers, including testing and specific continuing education 
requirements. However, we believe the changes adopted by IRS in 
notice 2011-6 confirm the Service's recognition of the inherent 
regulatory regime within which CPAs and other circular 230 
legacy practitioners already practice, as well as the fact that 
CPA firms must stand, as a matter of licensure, behind the work 
done by its members and employees of the firm.
    We believe these changes are appropriately focusing the 
program on the unenrolled preparer community that was 
implicated in GAO and TIGTA compliance studies cited in the IRS 
    The AICPA supports the tax return preparer program as it is 
structured today. Specifically, we support registering tax 
return preparers and the issuance of unique taxpayer [sic] 
identification numbers. Registration will allow the 
accumulation of important data on specific preparers, as well 
as classes of preparers, as a way that will allow the IRS to 
tailor compliance and education programs in the most efficient 
manner, expanding the ethical umbrella of circular 230 over all 
paid income tax preparers.
    Unenrolled preparers had previously not been subjected to 
the ethical guidance of circular 230, nor the circular 
sanctions on improper conduct. Creating a continuing education 
construct geared towards the unenrolled preparer community. We 
appreciate the Service's adoption in the recently-issued 
package of final regulations under circular 230 of modification 
to last year's proposed regulations regarding continuing 
    Including a basic 1040-oriented examination as an aspect of 
becoming a registered tax return preparer, moving away from a 
multi-tiered testing structure in order to focus on the basics 
is the correct remedial approach for the unenrolled preparer 
community that was, again, implicated in GAO and TIGTA 
compliance study. We also believe that having one examination 
would be less confusing to taxpayers in understanding the 
relative qualifications of the different classes of tax return 
    With regard to taxpayer confusion regarding relative 
qualifications, the IRS recognized this problem through the 
recent issuance of notice 2011-45, which constrains registered 
tax return preparers from misleading advertising and 
solicitation, and will require them to use the following 
statement in ads.
    The IRS does not endorse any particular individual tax 
return preparer. For more information on the tax return 
preparers, go to IRS.gov. We are confident that the IRS website 
will contain the additional information that taxpayers will 
need to make appropriate choices concerning selection of a tax 
    We also believe that any public database developed by IRS 
that is designed to serve as a look-up function where taxpayers 
may search for their preparer should be structured to mitigate 
any taxpayer confusion regarding relative qualifications. We 
are pleased with the work the IRS has undertaken with regard to 
its tax preparer program, and want to emphasize our overall 
    We share the Service's interest in improving tax 
administration, and protecting the tax-paying public. We look 
forward to working on the IRS as they continue to implement the 
    Thank you again for the opportunity to testify, and I would 
be happy to answer any of your questions.
    [The prepared statement of Mr. Thompson follows:]

    Chairman BOUSTANY. Thank you, Ms. Thompson.
    Mr. Cinquemani, you may proceed.


    Mr. CINQUEMANI. Thank you, Mr. Chairman, Chairman Boustany, 
Ranking Member Lewis, Members of the Subcommittee, we thank you 
for the opportunity to speak to you regarding our thoughts on 
what we consider to be the important issues stemming from a 
review of the return preparer review recommendations.
    The IRS is following most recommendations on publication 
4832. Long-term plans more detailed than that have not been 
made available to stakeholders. We know for certain, though, 
that before December 31 of 2013, affected tax preparers will 
have to be registered, suitable, tested, and educated, or they 
will not be permitted to continue as tax return preparers.
    NATP is pleased that the process has led out with 
registration. We have long counseled that relevant, accurate 
data is needed before the IRS can determine the extent of its 
preparer population, and then hone in on identifying the 
perpetrators of problems. Until then, any systemic approach to 
mitigating the tax gap or ridding Administration of the 
unscrupulous and incompetent is speculative.
    Registration, combined with mandatory eFiling will 
hereafter give the government the ability to know not only its 
population of preparers, but also to match them with the work 
they do. And we will finally be able to really know who does 
good work and who does not.
    Implementation so far seems reasonable, in terms of its 
proficiency. Considering the size of the task, amazing progress 
has been made. However, there appears to be an imbalance in 
treating affected tax preparers fairly. We have noted evidence 
which leads to such impressions. Here are some example.
    Number one, Section 10.3 of circular 230 literally prevents 
affected tax preparers from giving pre-transaction or other 
timely advice to their clients. The result of such a provision 
is counter-intuitive to good tax administration. It is also an 
egregious restraint of trade. It either puts taxpayers in 
harm's way because they will not become compliant, or it forces 
affected tax preparers out of business because they cannot 
compete with those who are permitted to give such advice.
    Third example--or, excuse me, second, the late decision to 
carve out preparers who are adequately supervised by attorneys, 
CPAs, and EAs, and the competitive advantage it gives the firms 
that are so exempted.
    Third, the change to requiring registration every year, 
instead of every three years, and the cost it poses to 
practitioners and to the IRS.
    And, fourth, the need to delay continuing education 
requirements until calendar year 2012.
    While communication of such developments indicates that 
progress is being made, the items just mentioned cause concern 
on the part of those whose livelihoods are on the line. The 
impact of the affected preparer community should be predictable 
under the circumstances. As we educate our members on these 
developments, those that must take the competency examination 
in order to stay in business naturally have some concerns.
    Many affected NATP members have registered the following 
with us. Overall, they are very distressed at the ostensible 
threat to their businesses. They want to study for and take the 
examination immediately. Since their average age is 56, it has 
been a little while since they have had to take an examination. 
And this one they see as an examination that determines whether 
or not they get to continue their livelihood or not. So they 
do, indeed, have test anxiety.
    They believe that they are being singled out as though they 
are responsible for all the unscrupulous behavior and 
incompetence in the preparation of tax returns. They believe 
that they are discriminated against on the basis of 
credentials. Some are going to retire. They are just going to 
work up to December 31, 2013, and then end it. Others are 
selling their practices. Still others are selling to 
credentialed professionals, and staying on to make their 
    And for some, the restrain of trade provisions in revised 
circular 230 were the last straw. They talk of taking to the 
courts. NATP is concerned that the tax administration system 
will be harmed by a loss of capable preparers that provide for 
the current compliance enjoyed by the system. We believe that 
many of these problems can be alleviated with reasonable and 
economic tweaks in the process, going forward.
    We recommend the following. First, remove the specific 
restraint of trade provision in Section 10.3(f)3 of circular 
230. On its face, regulators should be very interested that 
taxpayers are informed. At equity, preparers should not be put 
in a position of having to refer their clients to competitors 
for advice in the course of planning, emergencies, or any other 
instance in which taxpayers need help with compliance. At a 
minimum, change the wording to reflect that registered tax 
return preparers may give needed advice to their clients, but 
that such advice will not be considered confidential or 
privileged, as such communication has meaning under code 
Section 7525.
    The IRS should exercise more caution implementing this 
program, especially in light of their current resource 
limitations, until better information can be obtained through 
matching PTINs with problem returns.
    And a final recommendation. Building a program model that 
can keep small business preparers in place, thereby assuring 
jobs and livelihoods that can provide for healthy competition, 
and therefore, better serve the taxpayer and the tax 
administration system. Thank you.
    [The prepared statement of Mr. Cinquemani follows:]

    Chairman BOUSTANY. Thank you, Mr. Cinquemani.
    Mr. Gary, you are recognized for five minutes.


    Mr. GARY. On behalf of the National Association of Enrolled 
Agents, NAEA, and 43,000 enrolled agents, I want to thank the 
chairman, the ranking member, and the subcommittee, for the 
invitation to testify on the IRS's efforts to provide new 
standards for and oversight of unlicensed paid return 
    EAs have, for some time, supported the efforts to bring 
order to the chaos all too easily found in the return preparer 
community. More recently, we applauded a number of early 
decisions by IRS, including elements unpopular with many in the 
industry, such as a requirement for both mandatory competency 
testing, and for continued professional education for all non-
legacy circular 230 practitioners.
    Clearly, IRS has kept its eye on the prize: protecting 
taxpayers by adopting a variety of taxpayer safeguards, 
establishing an IRS process for disciplining preparers, and 
placing the Office of Professional Responsibility in charge of 
ethical behavior, using the existing penalty structure for 
failure to sign a return and/or failure to provide a valid 
PTIN, and relying on registration fees to cover program 
administration and enforcement.
    EAs believe self-funding is essential for ensuring adequate 
resources for full program implementation. Our main area of 
concern, however, is that the registered tax return preparers 
will be tested only on the most basic elements of individual 
income tax returns, but be permitted to prepare all income tax 
returns. Those who have taken a basic test would be able to 
market themselves as qualified to meet all tax preparation 
needs. Such an outcome protects only a portion of the tax-
paying public. And, frankly, we don't understand why IRS 
insists on protecting some taxpayers, but not those with the 
most complex returns.
    We believe that taxpayers and the tax community are better 
served by the basic proposition that tax returns should only be 
done by a preparer who has shown competency through testing on 
that particular return. IRS could achieve this by creating a 
tiered credentialing with a limited credential, the registered 
tax return preparer, and unlimited credentials: EAs, CPAs, and 
    Under a tiered system, legacy circular 230 practitioners 
would be authorized to prepare all tax returns, as under the 
current system, and would be granted unlimited practice before 
IRS. The newly credentialed would demonstrate competency on 
basic individual tax issues by passing an augmented part one of 
the special enrollment exam, and then be granted authority to 
prepare the basic return, along with limited representation 
    IRS could enforce this regime simply through computer 
matching of PTINs to the type of return. We believe that, 
without a tiered approach to credentialing, small business 
taxpayers, in particular, will suffer unnecessarily. We suggest 
it is reasonable to hold paid preparers responsible for the 
special compliance issues associated with small business 
    I close by touching on two issues of great importance: 
promotion and enforcement. IRS must continue to reach out to 
all segments of the paid preparer community to explain what is 
expected, going forward, into the next filing season. Nothing 
demonstrates this better than the fact that IRS recently 
identified roughly 100,000 return preparers who failed to 
comply with the new PTIN regulations for the 2011 filing 
    Even more importantly, IRS must begin now to explain the 
new oversight rules to the public. Changes of this magnitude 
are likely to cause confusion among consumers, particularly as 
some paid preparers are bound to promote their practices in an 
unfamiliar, and possibly misleading, fashion.
    We also remain concerned that many non-compliant preparers 
will continue to set up shop in certain targeted communities 
around this country, and continue exploiting less sophisticated 
taxpayers. The public will be our best defense against these 
individuals, but they must understand that they should only use 
qualified preparers.
    The public must also understand the difference between the 
new registered tax return preparers and the legacy circular 230 
practitioners. This won't be easy, but it is necessary for the 
integrity of this process, and it needs to start now.
    Promotion alone is not enough. The significant effort IRS 
is expending on preparer oversight will be for naught, absent a 
credible enforcement apparatus. Both taxpayers and qualified 
practitioners need a single point of contact at IRS to refer 
instances of suspected non-compliance. The Service must be 
prepared to pursue and punish to the full extent of the law 
parties who continue to prepare returns outside the new 
regulatory framework.
    I thank you for allowing the National Association of 
Enrolled Agents to testify today, and I look forward to your 
    [The prepared statement of Mr. Gary follows:]

    Chairman BOUSTANY. Thank you, Mr. Gary.
    Mr. Rothstein, you may proceed.


    Mr. ROTHSTEIN. Thank you, Mr. Chairman. Chairman Boustany, 
Ranking Member Lewis, and Members of the Subcommittee, thank 
you for giving me the opportunity to testify on behalf of 
Policy Matters Ohio, the New America Foundation, and the 
National Community Tax Coalition.
    My research is primarily focused on the financial status 
and socio-economic challenges experienced by the millions of 
low and moderate income tax filers in the United States. And my 
comments reflect the perspective of those who provide free tax 
assistance to help these individuals through the VITA program.
    My testimony today is based on the following four premises: 
one, low and moderate-income tax filers need and deserve high-
quality, affordable options with regard to tax preparation 
assistance. The costs and approaches of paid tax preparation 
services should be transparent, and easy for consumers of such 
services to understand.
    Several exemptions related to the new paid preparer 
regulations were established in response to issues raised by 
the paid preparer industry itself. And there are--and, number 
four, there are several implementation challenges that can be 
easily modified or resolved, so that the process can best serve 
working families, moving forward.
    Let me start again by commending the IRS for undertaking 
this large effort of regulating, educating, and tracking paid 
tax preparers. This process is critical for both the tax 
preparation sector and millions of clients who use their 
services. The overall goal was to increase tax compliance and 
ensure that taxpayers were knowledgeable, ethical, and skilled.
    The registration process, in our view, is crucial to track 
problem tax preparers, prevent the loss of income and revenue 
from inflated and poorly prepared returns, maximize the intent 
and delivery of refundable tax credits, and allow consumers to 
comparison shop with full information in the marketplace.
    That being said, we continue to have concerns about the 
registration process, and the interpretation of guidelines 
related to this initiative. We have some suggestions today that 
we believe can help.
    One concern relates to the delayed registration of some 
100,000 paid tax preparers with the IRS. Additionally, the data 
from this past tax filing season confirms that an extremely 
high number of fly-by-night paid tax preparation sites set up 
for a few weeks, charge high fees, and complete subpar and 
error-riddled returns. At worst, the preparers are totally 
disingenuous, targeting elderly and low-income filers, and 
selling them unnecessary services related to transferring 
funds, recovery rebates, and exaggerated refunds and Social 
Security claims, even after tax season.
    A recent wave of claims has suggested that several 
companies have misled consumers by imitating the IRS or 
associates of some fashion. The damage, in terms of taxpayers' 
faith in the tax preparation sector has been significant. And 
these continued abuses fly in the face of this new registration 
program. The consumer community is concerned about enforcement, 
not just after these occur, but in preventing them before they 
    A second issue of concern for taxpayers relates to who is 
covered by the regulations. To be clear, we strongly believe 
that anyone who the client thinks is a tax preparer should be 
registered and required to complete continuing education. The 
guidance from the IRS on this is helpful, but we are concerned 
about how it will be enforced and monitored.
    VITA site clients commonly report to us that when they have 
engaged the services of certain paid preparers--generally the 
fly-by-night ones--the bulk of their return is typically 
completed by one person, where tax law informed knowledge is 
necessary, and when the return is signed by a paid preparer at 
the end, they barely look at the return at all. Or, worse, the 
return is not signed at all.
    We implore the litmus test of who the client thinks is 
doing their taxes be used as a benchmark in some fashion. 
Additionally, we think it is vital that the test for 
certification be no less stringent than the existing individual 
1040 section of the enrolled agents exam.
    A third issue surrounds promotion and outreach for this new 
program. The majority of low and moderate-income families are 
unaware of this new registration requirement. They do not 
understand what these credentials mean, and how this program 
matters to them. Consumers need to know which preparer can do 
what services for them, and what credentials are required by 
preparers to perform such services.
    Finally, a fourth issue of concern is transparency around 
process and cost. Over the last decade, for several reasons, 
the price of paid tax preparation has steadily increased. Most 
of the time, total price is not provided to them until the 
return is completely prepared. Under this new program we 
suggested disclosure and transparency process which provides a 
baseline of fees and costs associated with preparing the 
return. The fees do not have to be universal. But rather, an 
estimate for comparison purposes to understand the fee 
structure upon completion.
    Additionally, there needs to be a centralized toll free 
phone number and database for complaints, which Mr. Williams 
addressed earlier. Similar to researching a housing contractor 
or auto repair facility using the Better Business Bureau, 
taxpayers should be able to research their tax preparer for 
type of registration, education, credentials, and performance.
    In sum, we believe this regulation process for paid 
preparers is needed and appropriate. We appreciate the 
opportunity to testify before you on the consumer perspective 
related to paid tax preparation.
    I am happy to answer any questions. Thank you, sir.
    [The prepared statement of Mr. Rothstein follows:]

    Chairman BOUSTANY. Thank you. I have a question for all the 
panelists. A very basic question. And that is, clearly when 
you're starting a new program like this, communication is 
important. And you have all touched on it.
    So, I would like each of you to comment on what did the IRS 
do well, and what did not work in their communication program 
on the new requirements, particularly for those who are not 
associated with a large firm or association. Give me your 
perspective on the state of play right now on the communication 
process. What worked? What didn't? I would like each of you to 
comment, if you would.
    Ms. THOMPSON. I will go first, if you like. We found that 
the IRS was very willing to listen to everything that we had to 
say, and their door was always open. So we felt that there was 
good communication. And we would expect that communication to 
continue, going forward. So we were very happy with the 
    Chairman BOUSTANY. Okay. Ms. Pickering?
    Ms. PICKERING. H&R Block has a direct line of communication 
with the program office. We are able to have regular dialogue, 
feedback and input with the IRS, and can share that with our 
tax professionals.
    However, it seems direct communication to the tax 
professional community is challenging for the IRS. Obviously, 
it is a large community, that's difficult to reach. I think the 
IRS is continuing to work on that, through the IRS forums and 
those kinds of things.
    Chairman BOUSTANY. Thank you. Mr. Cinquemani?
    Mr. CINQUEMANI. Perhaps the fact that we are located in 
Appleton, Wisconsin, rather than right here in Washington, D.C. 
might have some bearing on some of the communication that goes 
on day-to-day here within the IRS. But we have generally been 
very pleased with our ability to communicate with the Internal 
Revenue Service. We found the new registered preparer's office, 
in particular, very forthcoming and very helpful.
    There was some rocky start kinds of things, which you would 
expect in a program of this magnitude, and wide ranging. But we 
are very pleased.
    Chairman BOUSTANY. Thank you. Mr. Gary?
    Mr. GARY. Yes. The National Association of Enrolled Agents 
has had a very good relationship with the IRS in formulating 
this process. We have had very good feedback and deliberations 
with them.
    I think the area where we have some concern is that, as Mr. 
Williams had indicated in his earlier testimony, the public 
will not be notified of the process until far downstream. We 
believe the public should be on board now. They should know 
that their preparer should be signing their return, and should 
have a valid PTIN. And that is information that I think is a 
little bit lacking, and should be improved upon by the IRS.
    Chairman BOUSTANY. That is helpful. Thank you. And Mr. 
    Mr. ROTHSTEIN. Thank you. Yes, the VITA community has been 
welcomed, and we have worked with the IRS on this process. So 
we did feel like our comments were included through IRS and 
through other folks.
    We do share the concern, again, about outreach and 
promotion, as was just mentioned. Our clients and other low and 
moderate-income families just don't understand what is going 
on, or what will happen in the years to come. So the sooner we 
get it out there, I think, the better.
    Chairman BOUSTANY. Thank you. And, as you all know, on top 
of the $64.25 PTIN application fee, preparers will have a 
required competency exam. There will be fingerprinting, 
continuing education requirements. So, just a basic question. 
In your perspective, how will these new costs affect preparers? 
And will we see an increase in prices, in reduced access? Is 
that a potential problem, with regard to consumers? I would 
like each of you to briefly comment on that, as well.
    Ms. PICKERING. As we had discussed in our testimony, H&R 
Block is deeply concerned about the additional fees for the 
competency testing and the fingerprinting as well as the travel 
costs to get to testing sites.
    We are wondering, if we will start losing tax preparers who 
want to end their careers because of the difficulty of 
complying with these regulations. Unfortunately, this would 
then result in limited service and fewer people available to 
prepare tax returns. If that were to happen in rural areas, 
then there is just that much less service for the members of 
that community.
    So we are trying to be very supportive of our tax 
preparers, to help them as much as possible to navigate these 
    Chairman BOUSTANY. Thank you. Ms. Thompson?
    Ms. THOMPSON. Okay. I am going to answer this from the 
general population, because, working as a CPA, we don't have 
the same testing and CPE requirements that the IRS has in 
place, because we already have our own testing and our own CPE, 
so we have our costs that are already there, and it is just not 
building on it.
    But we do think that the IRS should be cautious about the 
total cost of the program for the individual tax preparers that 
are going to be involved in this. And that would include all 
aspects of it, whether it is the testing, whether it is the CE, 
whether it is the suitability check, whatever it might be.
    Chairman BOUSTANY. Thank you. Mr. Cinquemani?
    Mr. CINQUEMANI. As we have noted, many small businesses, 
particularly some of the preparers that only do between 50--
like 50 and 100 returns, for example, have a difficult time 
passing that on. They got into the business and into a niche, 
so to speak, by preparing what they consider to be very good 
services at a very reasonable fee for people.
    Some of them left a practice that they were in, and in 
retirement they have a great many people that they still 
service. They are aware of their clients' financial needs and 
restrictions. And they are concerned about having to pass those 
prices on. They develop relationships in this manner over such 
a long period of time, that it is difficult for them to deal, 
for small business in particular.
    Chairman BOUSTANY. Thank you. Mr. Gary?
    Mr. GARY. Yes. The enrolled agent community also is not 
affected directly by the pricing structure set up for 
registered return preparers. We are aware of the burden that 
the pricing might cause for individual practitioners. But, from 
an--the cost of education, we feel, is a cost of doing 
business, and we hope that the IRS will be very cognizant of 
the overall burden that is placed on registered return 
preparers in the form of fees.
    Chairman BOUSTANY. Thank you. And Mr. Rothstein?
    Mr. ROTHSTEIN. Yes. We share the same concerns about 
increases in prices. But at the same time, we feel that we 
would weigh more heavily on the knowledgeable and ethical 
returns, and would agree that the cost of doing business would 
supersede that.
    Chairman BOUSTANY. Thank you.
    Mr. ROTHSTEIN. Thank you.
    Chairman BOUSTANY. Mr. Lewis?
    Mr. LEWIS. Thank you, Mr. Chairman. I want to thank each 
one of you for being here today. I appreciated just listening 
to your testimony and reading your biographical sketch. I want 
to thank you for all of your great work in this area.
    Mr. Rothstein, I want to ask you--I think you made it 
clear--I think four of you, at least--made it very clear that 
you support the program, as presented by the IRS. And maybe one 
of you has some reservation. But Mr. Rothstein, why is the 
program so important?
    Mr. ROTHSTEIN. Thank you, Mr. Lewis, for the question. The 
program is so important because, as many--it has been discussed 
before today that nearly 8 in 10 families who are filing their 
taxes are either using software or are paying to do so.
    The returns often times at our VITA sites--at the free tax 
sites and free tax clinics that we work with--what we see are 
people who have had bad returns done for several years. And the 
need for correction on those is pretty intense. And we feel 
that in this sector, there needs to be some benchmarks in 
there, and there needs to be a good registration process.
    Also, this is a very important time of year for low and 
moderate-income families. It is often the most important time 
of the year for them, where they can see upwards of one-eighth 
of their annual income in a tax refund. So it becomes a very 
important and crucial time for them. And we think that that 
requires some serious education and sort of standings. Because 
right now there is a lot of confusion in the marketplace of who 
can perform what service, where people should go for what 
service. And we think that this would dramatically improve 
    At the state level, in California and Oregon, and even in--
recently in Maryland, when these types of paid tax preparation 
regulations were passed, there were similar discussions. And 
one of the things that consistently came up was, as a hair 
dresser, you have to be registered, but as a tax preparer you 
don't. And, even though a bad haircut is obviously very bad, at 
the same time, a bad tax return is even worse.
    Mr. LEWIS. Thank you. Mr. Rothstein, your testimony 
recommended that the IRS establish a central number and 
database for complaints. How would this help compliance?
    Mr. ROTHSTEIN. Sure. I think what would happen is many tax 
filers, when they are looking for somebody to perform this 
service, would be able to do sort of their homework before they 
go into the shop or the store, and they would be able to look 
at the database and say, ``Okay, within my zip code there are 
10 preparers, and these are their credentials, and they have a 
satisfactory and good rating with the IRS right now. So 5 of 
the 10 of them, I am going to go and look at.''
    But right now, there is really no way to do that. You don't 
know, as a consumer, before you walk into the store, what kind 
of service you are going to get.
    Mr. LEWIS. Thank you. Mr. Gary, I believe you traveled the 
greatest distance to be here. All the way from California, am 
    Mr. GARY. That is correct, sir.
    Mr. LEWIS. From northern California?
    Mr. GARY. Yes.
    Mr. LEWIS. Okay. Well, thank you so much for being here. Do 
you think the average taxpayer understands the program?
    Mr. GARY. Taxpayer? No, actually, I don't think the average 
taxpayer understands the program at all, and that is because 
the IRS has failed to do outreach to the public. Right now 
there is a significant number of people that go to--I think as 
Congressman Becerra pointed out--the ghost preparers, or the 
black market preparers. There is a significant number of tax 
returns that are filed where a preparer has been paid for their 
services, but they do not sign the tax return, and have not 
obtained a valid PTIN.
    So, I think, with outreach to the public and making the 
public aware of their requirement to get a qualified tax return 
preparer in order to do their tax return, is vital.
    Mr. LEWIS. Thank you very much. I thank each one of you for 
being here. You have been very helpful. I yield back, Mr. 
    Chairman BOUSTANY. Thank you, Mr. Lewis. Ms. Jenkins?
    Ms. JENKINS. Thank you, Mr. Chair. Thank you for having a 
second panel. And I would like to thank our panelists for all 
taking time to be here today.
    Ms. Pickering, in your written testimony you raised the 
issue of working with the IRS to create a group PTIN 
registration renewal process as a way to simplify the 
administration and the new requirements. Can you describe how 
this group registration would function, how it would save time 
and money for the IRS, and what it would mean for your 
individual tax preparers?
    Ms. PICKERING. Thank you. Let me start by describing the 
process that we went through this year to register our tax 
preparers. As I mentioned, we have 97,000 tax preparers, a 
portion of which are enrolled agents. And so, for them, as well 
as all the others, we needed to ensure that their PTINs were 
applied for.
    Not all of our tax preparers have computers at home or 
Internet access. Not all of them have credit cards. Their 
personal situations vary. So H&R Block hosted registration 
parties. In the fall, we invited all of our tax preparers into 
the offices, so that we could provide access to computers, 
access to the online systems, and then use our corporate credit 
card to pay for their registration. It was important to us to 
support our associates, and so we were paying for their 
registration, as well. This consumed a lot of time and energy 
around an action that simple.
    We also had to modify our internal systems: our payroll, 
human resources, and tax preparation systems, so that we could 
have internal controls to ensure that our associates all had 
PTINs, so that when they were preparing their returns, the 
PTINs were all registered, as well.
    With a group registration process, we would be able to 
renew, register, and create a file, ideally, that we would send 
to the IRS, and they could, through a batch process, update 
their files. This is a process that we worked out with New York 
the prior year--because New York has a state registration 
system--and it was a way to alleviate the extra time and 
administrative burden that was associated with this very 
fundamental process.
    Ms. JENKINS. Okay, thank you. I would be curious if any of 
the other members of the panel feel like they would benefit 
from a group registration option.
    Ms. THOMPSON. I am with a staff of 50, and we did have all 
of the individuals do the registration. They are all in our 
office every day, so we don't have the same type of issues that 
an H&R Block would, where they don't have access to the 
computer. So they actually had it as part of their workday, and 
we did have to monitor at the end that they did have their 
PTINs, and they were ready to go at the beginning of the 
    Ms. JENKINS. Okay. Anybody else want to comment?
    [No response.]
    Ms. JENKINS. All right. One of the goals for testing and 
tax return checks is to catch bad actors in the tax return 
preparer world, as a means to improve compliance. However, the 
IRS has not created a clear measurement for taxpayer 
compliance, and there is no defined compliance and enforcement 
program yet in place when the bad actors are identified.
    So I just would like all of you maybe to comment briefly in 
detail any concerns in these areas, and any recommendations 
that you might have to improve the program in your areas. Ms. 
    Ms. PICKERING. I would like to start. H&R Block has 
commented recently on the EITC due diligence requirements, and 
some of the challenges that we see with that program, 
specifically when the IRS is conducting the EITC audits. Their 
audit standards have not been published, and the auditors all 
have subjective approaches to the implementation of their 
    And so, we would like to have published standards that say, 
``This is,'' for example, ``what the EITC due diligence 
guidelines and standards must be, and when we are conducting an 
audit it must comply with these certain attributes.'' When we 
have an objective, measurable standard like that, we will be 
able to perform to that standard.
    Ms. JENKINS. Okay. Any other thoughts?
    Ms. THOMPSON. I would think one of the things that David 
Williams had mentioned was the 10,000 letters and the 2,500 
office visits. Maybe there is some work that can be done in 
that area to better target the individuals that are actually 
the bad actors. That might be helpful.
    Ms. JENKINS. Okay, thank you. I yield back, Mr. Chairman.
    Mr. CINQUEMANI. I would like to make one comment with 
regard to that, if I may, please. I think we need to keep in 
mind here that basically what we are doing is regulating a 
large population of those who are already compliant, or are 
certainly interested in already being compliant, so that when 
it comes to looking at those who are unscrupulous, and even 
incompetent, they are flying under the radar of a lot of the 
    And I don't know how the return preparer's office can be 
held responsible for ferreting those people out. It would seem 
to me that that would be an investigative and enforcement 
function of perhaps the criminal investigation division of the 
Internal Revenue Service.
    Chairman BOUSTANY. Thank you. Mr. Becerra?
    Mr. BECERRA. Thank you, Mr. Chairman. Thank you all for 
your testimony. Mr. Rothstein, let me ask you a question. I 
think Mr. Williams, in his testimony, said that one of the 
concerns that many have raised--and you being one of them--is 
that we need to make sure that we establish some form of public 
database of preparers, so we can give the consumer a chance to 
understand who--which preparers are in good standing, who has 
been the bad apple and who has done work right.
    Is it your sense that IRS is moving forward with that 
proposal to establish such a database?
    Mr. ROTHSTEIN. My sense is that it is definitely in their 
time frame and framework to do so. We think the sooner, the 
better, obviously. And our hope is that the more data that is 
available on that database, the better, as well. We----
    Mr. BECERRA. So the sooner the better?
    Mr. ROTHSTEIN. The sooner the better.
    Mr. BECERRA. So there is--IRS says they are trying to 
establish that database. You are not saying no, you are just 
saying try to get it sooner than later?
    Mr. ROTHSTEIN. Absolutely.
    Mr. BECERRA. What about--you have another recommendation 
about providing transparency and disclosure of paid tax 
preparer fees in a manner that would be similar to what we see 
right now with a credit card fee disclosure box.
    Do you know if IRS is moving forward with that 
    Mr. ROTHSTEIN. Representative Becerra, my sense is that I 
have not heard that being the case. I would follow up with the 
IRS and ask. But, to my knowledge, no, they are not.
    Mr. BECERRA. We can follow up on that. I think that is a 
good idea, again, to give consumers a chance to understand. It 
is the buyer beware sort of caution, that you give consumers as 
much information in advance, so they can make decisions, so we 
don't have to try to remedy problems later on. So thank you for 
    Mr. Gary, quick question for you. Do you think that 
preparers should be required--these preparers that would get 
registered--should be required to take the same type of test 
for preparation of individual tax returns as you and your folks 
who are enrolled agents do?
    Mr. GARY. Yes, I do. Thank you for the opportunity to 
address that question.
    Mr. BECERRA. And if you could, do it quickly----
    Mr. GARY. Yes.
    Mr. BECERRA [continuing]. Because I don't have much time.
    Mr. GARY. The IRS has a proven test for individual tax 
competence, and that is Part I of the special enrollment 
examination. It would save the taxpayer money, it would save 
the government money, if the Part I were used.
    Mr. BECERRA. And I wish we had more time, because I think 
many people might be watching this, and not quite understanding 
what the difference is between the different types of folks who 
prepare. You've got CPAs who probably are as skilled and 
trained as you can find, when it comes to someone who could 
prepare a tax return for you. You have got enrolled agents who 
are also skilled and have been certified by the IRS. And so 
you've got a lot of different levels. You've got attorneys who 
can do this, as well. And then you've got organizations like 
H&R Block, who have been doing this for decades.
    And so, it would be helpful, I think, for consumers to 
understand what the difference is, so they know what they are 
getting for the money.
    Mr. Cinquemani, if I could ask you a question, I am a 
little concerned by some of your testimony. I appreciate that 
you are here, I appreciate your membership being here, but I am 
a little concerned that you make it sound like what we are 
trying to do through this registration and testing of 
qualifications might drive someone out of business.
    You mention, for example, the small operation, someone who 
does 50 to 100 returns in a year. I don't think anyone wants to 
cause difficulty for someone, especially who is a small 
business man or woman who does a few of these.
    But my understanding is that the fee, the registration fee 
to get registered for these preparers, would be $65. Say you do 
50 to 100 of these returns. That is a dollar or two more than 
you would have to charge per return if you are one of these 
preparers who is a small operation. To me, that is a small 
price to pay to make sure that that consumer going to that 
small operator is certified.
    Mr. CINQUEMANI. Representative Becerra, the context in 
which that comment was made with regard to putting people out 
of business was with respect to Section 10.3(f)3 of circular 
230, which basically states that a registered return preparer 
cannot give advice, except in the preparation of a tax return, 
    Mr. BECERRA. Okay, and I understand that. And I would--and 
I share some of your concern, because often times folks come in 
with lots of questions that go beyond, ``Here are my documents, 
prepare my tax return for me.''
    But at the same time, rather than try to--let's move 
forward, working together, to make sure that people who are 
qualified are able to give the advice that consumers need----
    Mr. CINQUEMANI. Agreed.
    Mr. BECERRA. But I think what we are trying to do is 
finally stop this pervasive underground--I call it a black 
market operation that is out there. They are open one week and 
they are gone the next. And a lot of folks pay good money to 
get good advice.
    And so all those small guys who do 50 or 100 and keep to 
what their skill level is, and their qualifications are, I want 
to put them--elevate them. But the guy that goes after that 
101st person and causes them to be audited unfairly, we should 
descend on them with a hammer so hard, that they become the 
example for the rest of the industry.
    So I hope you will continue to be engaged in your 
membership, because I think----
    Mr. CINQUEMANI. Absolutely.
    Mr. BECERRA [continuing]. Every one of you provided 
valuable testimony.
    Mr. CINQUEMANI. Absolutely, we will.
    Mr. BECERRA. I thank you very much, Mr. Chairman----
    Mr. CINQUEMANI. And we are very supportive of the process, 
as well.
    Mr. BECERRA. Thank you. Thank you, Mr. Chairman.
    Chairman BOUSTANY. Thank you. Mr. Reed.
    Mr. REED. Thank you, Mr. Chairman. Mr. Cinquemani, I want 
to give you an opportunity, because I am interested in the 
comment you made about--that the advice that will no longer be 
able to be provided--I think you were going to go down that 
path in response to my colleague's question, previously.
    So what advice would they not be permitted to do after this 
is implemented? And could you give me some examples of what 
that type of advice is?
    Mr. CINQUEMANI. Yes. In the way it is worded currently, 
someone can give advice in terms of where someone walks in with 
a shoebox full of receipts, and you say, ``Well, you take--this 
belongs on this line of the return, that belongs on that line 
of the return.''
    If someone during the year comes up and says, ``I want to 
trade my dump truck for a D9 bulldozer''----
    Mr. REED. Right, yes.
    Mr. CINQUEMANI [continuing]. They are not permitted to give 
that kind of advice, under the provision the way it is 
currently stated. If someone has an emergency, a death in the 
family, and they need advice on a final 1040 or 1041 return, 
you can't give that kind of advice. If someone calls up and has 
a concern about being compliant over one issue or the other, 
that is giving advice.
    Mr. REED. And so, under these proposed regulations, they 
would no longer be able to be----
    Mr. CINQUEMANI. That particular provision----
    Mr. REED [continuing]. That pre-tax advice, and that type 
    Mr. CINQUEMANI. Yes. And there is an easy fix to it.
    Mr. REED. And what is the fix?
    Mr. CINQUEMANI. The fix is just to basically say that they 
can give advice, but that their advice is not deemed 
privileged, as that communication is----
    Mr. REED. Attorney-client type stuff?
    Mr. CINQUEMANI. Yes.
    Mr. REED. Okay. All right, I appreciate you clarifying that 
for me.
    The other inquiry I wanted to make of the panel, you 
heard--maybe you were here when I was asking the Agency a 
question about the rural areas. I come from a rural district of 
New York. Do you see any concerns about impact that this would 
have on servicing residents, citizens in rural areas of the 
country, maybe from an H&R point of view?
    Ms. PICKERING. Thank you for asking that question. H&R 
Block is very concerned about that. With over 3,000, 4,000 
offices in rural areas, as well, we have 170 tax preparers in 
international areas, where they serve U.S. military bases. We 
don't know how we will get those preparers through the 
competency examination.
    We did hear David say that it is something that they want 
to understand----
    Mr. REED. Work on, yes.
    Ms. PICKERING [continuing]. And work on, but it is clearly 
an area that is of big concern for us. What we don't want to 
have happen is that we are unable to get our preparers 
registered and then, as such, we are unable to serve those 
communities that rely very heavily on this----
    Mr. REED. So, from your point of view, is it legitimate, 
fair to say, that it is a--this is a legitimate issue, a 
legitimate concern, and needs to be addressed, in your opinion, 
prior to full enactment of these provisions?
    Ms. PICKERING. I would say that wholeheartedly. This is a 
legitimate concern that we need to address.
    Mr. REED. And then--I am always trying to be practical--do 
you have any ideas on how we could address that, and then solve 
that issue?
    Ms. PICKERING. Our recommendation would be to let H&R Block 
continue the program and accept our program--certify our 
    Mr. REED. As equal. Okay. Any other ideas on how to address 
that concern from any other members of the panel?
    [No response.]
    Mr. REED. Do other members of the panel think that is not a 
concern? Anyone on the panel?
    [No response.]
    Mr. REED. All right. All right, thank you, Mr. Chairman. I 
yield back.
    Chairman BOUSTANY. Thank you. I want to thank all of you 
for your testimony, and being patient, and answering our 
questions. Please be advised that Members may have additional 
questions that they will submit. Those questions and your 
answers would be made part of the official record.
    Again, thank you. I think this has been a very helpful 
hearing for us, and as we go forward with this program. The 
subcommittee now stands adjourned.
    [Whereupon, at 11:24 a.m., the subcommittee was adjourned.]


    Rep. Boustany's for David Williams

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