[Congressional Record Volume 151, Number 49 (Thursday, April 21, 2005)]
[Senate]
[Pages S4102-S4104]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
TAXPAYER PROTECTION AND ASSISTANCE ACT
Mr. BINGAMAN. Mr. President, on Monday, April 18, 2005, I introduced
S. 832, the Taxpayer Protection and Assistance Act of 2005.
I ask unanimous consent to have printed in the Record explanatory
language to accompany that legislation.
There being no objection, the material was ordered to be printed in
the Record, as follows:
Analysis of Taxpayer Protection and Assistance Act
(1) low-income taxpayer clinics
Present Law. The Internal Revenue Code (the ``Code'')
provides that the Secretary is authorized to provide up to $6
million per year in matching grants to certain low-income
taxpayer clinics. Eligible clinics are those that charge no
more than a nominal fee to either represent low-income
taxpayers in controversies with the IRS or provide tax
information to individuals for whom English is a second
language (``controversy clinics''). No clinic can receive
more than $100,000 per year.
A ``clinic'' includes (1) a clinical program at an
accredited law, business, or accounting
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school, in which students represent low-income taxpayers, or
(2) an organization exempt from tax under Code section 501(c)
which either represents low-income taxpayers or provides
referral to qualified representatives.
Explanation of Provision. The provision authorizes $10
million in matching grants for low-income taxpayer return
preparation clinics (``preparation clinics''). These clinics
may provide tax return preparation and filing services to
low-income taxpayers, including those for whom English is a
second language. The authorization of $6 million for low-
income controversy clinics under present law is also
increased to $10 million.
The provision expands the scope of clinics eligible to
receive preparation clinic grants to encompass clinics at all
educational institutions. The provision prohibits the use of
grants for overhead expenses at both controversy clinics and
preparation clinics. The provision also authorizes the IRS to
use mass communications, referrals, and other means to
promote the benefits and encourage the use of low-income
controversy and preparation clinics.
Effective Date. The provision is effective for grants made
after the date of enactment.
(2) enrolled agents
Present Law. The Secretary is authorized to regulate the
practice of representatives of persons before the Department
of the Treasury. Circular No. 230, promulgated by the
Secretary, provides rules relating to practice before the
Department of the Treasury by attorneys, certified public
accountants, enrolled agents, enrolled actuaries, and others.
Explanation of Provision. The provision adds a new section
to the Code permitting the Secretary to prescribe regulations
to regulate the conduct of enrolled agents in regard to their
practice before the IRS and to permit enrolled agents meeting
the Secretary's qualifications to use the credentials or
designation ``enrolled agent'', ``EA'', or ``E.A.''.
Effective Date. The provision is effective on the date of
enactment.
(3) regulation of practice before the department of the treasury
Present Law. The Secretary of the Treasury is authorized to
regulate the practice of representatives of persons before
the Department of the Treasury. The Secretary is also
authorized to suspend or disbar from practice before the
Department a representative who is incompetent, who is
disreputable, who violates the rules regulating practice
before the Department, or who (with intent to defraud)
willfully and knowingly misleads or threatens the person
being represented (or a person who may be represented). The
rules promulgated by the Secretary pursuant to this provision
are contained in Circular 230. Although permitted by statute,
the preparation and filing of tax returns and other
submissions (absent further involvement) has not been
considered within the scope of these Circular 230 provisions.
Reasons for Change. In her 2003 annual report to the
Congress, the National Taxpayer Advocate noted that over 55
percent of the 130 million U.S. individual taxpayers paid a
return preparer to prepare their 2001 Federal income tax
returns and that of the 1.2 million known tax return
preparers, one-quarter to one-half are not regulated by any
licensing entity or subject to minimum competency
requirements. Fifty-seven percent of the earned income credit
overclaims were attributable to returns prepared by paid
preparers.
Tax practitioners play an important role in the tax system.
While certain individuals authorized to practice before the
IRS are already subject to oversight, many are not. For those
taxpayers who use a paid tax practitioner, compliance with
the tax laws hinges on the practitioners competence and
ethical standards. The IRS's lack of oversight over such
practitioners therefore contributes to noncompliance.
Further, improving the accuracy of tax returns at the front-
end of the process, should reduce government burden and
intrusion on taxpayers through enforcement.
Requiring regulation of individuals preparing Federal
income tax returns and other documents for submission to the
IRS will improve the fairness and administration of the tax
system. Testing, education, ethical training, and effective
oversight of enrolled preparers are critical elements to
improving tax compliance.
Description of Proposal. The proposal expands the
Secretary's authority to regulate representatives practicing
before the Treasury to include individuals preparing for
compensation Federal income tax returns and other submissions
to the IRS (``enrolled preparers''). The types of
practitioners authorized to practice before the IRS that are
subject to oversight under regulations in effect on the date
of enactment of the proposal are excluded from the
regulations establishing eligibility requirements for
compensated preparers (i.e., Enrolled Agents, Certified
Public Accountants, and attorneys).
The Secretary of the Treasury is required to issue
regulations no later than one year after the date of
enactment establishing eligibility requirements for enrolled
preparers to practice before the Treasury. Such regulations
will require the initial registration of enrolled preparers,
as well as a process for regularly renewing the initial
registration. Enrolled preparers renewing their registration
shall be required to establish completion of continuing
education requirements in a manner set forth by the Treasury
in regulations. The Secretary is expected to minimize the
burden and cost on those subject to the registration
requirement to the extent feasible. Thus, the Secretary is
authorized to define the scope of the registration
requirement in a manner that accomplishes this goal.
The proposal requires the Secretary to develop and
administer an examination to establish the competency of
enrolled preparers. The examination for the enrolled
preparers should test the applicant's technical knowledge to
prepare Federal tax returns and knowledge of ethical
standards. Moreover, the examination shall be designed to
include testing on technical issues with high rates of
erroneous reporting, such as claims for the earned income
credit. The Secretary is authorized to contract for both
the development and administration of any examination. The
contract authority includes allowing the Secretary to
establish the parameters that the examination must meet
and authorize the use of an examination that is not,
however, developed or administered by the IRS. Further,
efficiencies will be gained by coordinating the
examination requirement with the enrolled agent exam (the
Special Enrollment Examination (SEE)).
To enhance the regulation of practice before Treasury, the
proposal establishes the Office of Professional
Responsibility within the IRS under the supervision and
direction of the Director, an official reporting directly to
the Commissioner, IRS. The Director, Office of Professional
Responsibility will be entitled to compensation at the same
rate as the highest rate of basic pay established for the
Senior Executive Service, or, if higher, at a rate fixed
under the critical pay authority established under section
9503 of title 5. The proposal also authorizes the Secretary
to appoint administrative law judges to conduct hearing of
sanctions imposed on representatives practicing before the
Treasury and allows transparent proceedings involving
practitioners to provide accountability for both the
practitioners and the discipline authority (i.e., the IRS).
The Secretary may impose fees for the registration and
renewal of enrolled preparers. The proposal provides that the
fees paid for registration and renewal shall be available to
the Office of Professional Responsibility for the purpose of
reimbursing the costs of administering and enforcing rules
promulgated by the Secretary regulating practice before the
Treasury.
The proposal also provides that the Secretary shall conduct
a public awareness campaign to encourage taxpayers to use
only those professionals who establish their competency under
the regulations promulgated under section 330 of title 31.
The public awareness campaign shall be conducted in a manner
to inform the public of the registration requirements imposed
on enrolled preparers and the general requirement that
preparers must sign the return and provide their registration
number on the return.
The proposal increases the penalties on tax return
preparers who fail to sign a return or fail to provide an
identifying number on a return from $50 to $500 per return.
In addition, amounts collected from the imposition of
penalties under section 6694 and 6695 or under the
regulations promulgated under section 330 of title 31 shall
be directed to the Office of Professional Responsibility for
the administration of the public awareness campaign. The
proposal also permits the Secretary to use any funds
specifically appropriated for earned income credit compliance
to improve compliance with the rules regulating practice
before the Treasury.
Effective date. The provision is effective on the date of
enactment.
(4) Regulation of Refund Anticipation Loan Facilitators
Present Law. The Secretary of the Treasury is authorized to
regulate the practice of representatives of persons before
the Department of the Treasury. The rules promulgated by the
Secretary pursuant to this provision are contained in
Circular 230. In general, the preparation and filing of tax
returns (absent further involvement) has not been considered
within the scope of these Circular 230 provisions.
The tax code also imposes penalties on persons who fail to
follow various tax code requirements in the process of
preparing and filing tax returns on behalf of taxpayers.
Present law does not contain any provision regulating the
conduct of persons who provide refund anticipation loans to
individual taxpayers in connection with the filing of tax
returns.
Reasons for Change. There is concern with the use of tax
refunds and the IRS's direct deposit indicator
acknowledgement as a means for selling refund anticipation
loans to taxpayers, particularly low-income taxpayers.
Requiring regulation of refund anticipation loan facilitators
will increase the ability of the IRS to hold such
facilitators accountable. Increasing the information that
must be disclosed, both orally and in writing, to the
taxpayer in connection with a refund anticipation loan will
heighten taxpayer awareness of the true costs and
consequences of a refund anticipation loan.
Description of Proposal. The proposal requires the annual
registration of refund loan facilitators with the Secretary
of the Department of the Treasury. A refund loan facilitator
is any person who originates the electronic submission of
income tax returns for another person and, in connection with
the electronic submission, solicits, processes, or otherwise
facilitates the making of
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a refund anticipation loan to the individual taxpayer on
whose behalf the tax return is submitted. It is intended that
the Secretary, in promulgating regulations under this
proposal, will require refund loan facilitators to submit an
annual application that includes the name, address, and TIN
of the applicant and a schedule of the applicant's fees for
such year.
The proposal requires refund loan facilitators to disclose
to taxpayers, both orally and in writing, that they may file
an electronic tax return without applying for a refund
anticipation loan and the cost of filing such an electronic
return compared to the cost of the refund anticipation loan.
In addition, the proposal requires refund loan facilitators
to disclose to taxpayers all fees and interest charges
associated with a refund anticipation loan and provide a
comparison with fees and interest charges associated with
other types of consumer credit, as well as fees and interest
charges for similar refund anticipation loans. Refund loan
facilitators also must disclose to taxpayers the expected
time within which tax refunds are typically paid based on
different filing options, the risk that the full amount of
the refund may not be paid or received within the expected
time, and additional costs the taxpayer may incur in
connection with the refund anticipation loan if the tax
refund is delayed or not paid.
In addition to the above disclosure requirements, refund
loan facilitators must disclose to taxpayers whether the
refund anticipation loan agreement includes a debt collection
offset arrangement. Debt collection offsets are arrangements
between refund loan facilitators and a taxpayer's creditor to
offset the taxpayer's expected refund against an outstanding
liability owed to the creditor. There is concern with the
potential abuse of individual taxpayers through the use of
such arrangements by refund loan facilitators. To discourage
their use, refund loan facilitators must fully disclose to
taxpayers any arrangements to offset a taxpayer's expected
refund against an outstanding liability. The Secretary is
authorized to require refund loan facilitators to disclose
any other information deemed necessary. The provision does
not preempt state laws or political subdivision thereof.
The proposal permits the Secretary to impose monetary
penalties on refund loan facilitators who fail to meet the
registration or disclosure requirements, unless such failure
was due to reasonable cause. The penalty for failure to
register is not to exceed the gross income derived from all
refund anticipation loans during the period the refund loan
facilitator was not registered. The penalty for failure to
disclose the information required by the proposal is not to
exceed the gross income derived from all refund anticipation
loans with respect to which the refund loan facilitator
failed to provide the required disclosure information. The
proposal also permits the Secretary to disclose the name of
or penalty imposed upon any refund loan facilitator who
fails to meet the registration or disclosure requirements.
The proposal provides that the Secretary shall conduct a
public awareness campaign to educate the public on the costs
associated with refund anticipation loans, including the
costs as compared to other forms of credit. The public
awareness campaign shall be conducted in a manner that
educates the public on making sound financial decisions with
respect to refund anticipation loans. Amounts collected from
the imposition of penalties on refund loan facilitators shall
be directed to the IRS for the administration of the public
awareness campaign.
Effective date. The proposal is effective on the date of
enactment.
(5) Taxpayer Access to Financial Institutions
Present Law. A large number of individual taxpayers do not
have bank accounts. Because of this, these taxpayers are
unable to participate fully in electronic filing, because IRS
cannot electronically transmit to them their tax refunds.
Reasons for Change. Effectiveness of tax incentives and
assistance programs are diminished when individuals do not
have an account at a financial institution. For example, the
benefits received through the Earned Income Tax Credit
incentive diminishes when taxpayers redirect their tax refund
in exchange for a refund anticipation loan. In contrast, if
such taxpayers had an account at an insured financial
institution, such tax refund could be directly deposited into
the taxpayer's account without a reduction for fees paid to a
refund anticipation loan facilitator.
Between 25 and 56 million adults are do not have an account
with an insured financial institution. These individuals rely
on alternative financial service providers to cash checks,
pay bills, send remittances, and obtain credit. Many of these
individuals are low- and moderate-income families. Promoting
the establishment of accounts with an insured financial
institution will allow the taxpayer to keep more of his or
her tax refund and encourage savings.
Description of Proposal. The proposal authorizes the
Secretary of the Department of the Treasury to award
demonstration project grants (totaling up to $10 million) to
eligible entities to provide tax preparation assistance in
connection with establishing an account in a federally
insured depository institution for individuals that do not
have such an account. Entities eligible to receive grants
are: tax-exempt organizations described in section 501(c)(3),
federally insured depository institutions, State or local
governmental agencies, community development financial
institutions, Indian tribal organizations, Alaska native
corporations, native Hawaiian organizations, and labor
organizations.
The provision requires the Secretary, in consultation with
the National Taxpayer Advocate, to study the delivery of tax
refunds through debit cards or other electronic means, in
addition to those methods presently available. The purpose of
the study is to assist those individuals who do not have
access to financial accounts or institutions to obtain access
to their tax refunds. The Secretary shall submit a report to
Congress with the results of the study not later than one
year after the date of enactment.
Effective Date. The proposal is effective on the date of
enactment.
(6) Use of Practitioner Fees
Present Law. The Tax Court is authorized to impose on
practitioners admitted to practice before the Tax Court a fee
of up to $30 per year. These fees are to be used to employ
independent counsel to pursue disciplinary matters.
Explanation of Provision. The provision provides that Tax
Court fees imposed on practitioners also are available to
provide services to pro se taxpayers who may not be familiar
with Tax Court procedures and applicable legal requirements.
Fees may be used for education programs for pro se taxpayers.
Effective Date. The provision is effective on the date of
enactment.
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