[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

[[Page S4104]]

     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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