Some Unregulated Preparers Use Tax Season for Illicit Profits

It’s tax time. Across the nation, millions of families are rolling up their sleeves to file federal and state income tax forms—and millions more are awaiting refunds. But as a New York Times report documents, a cottage industry of untrained, unregulated “tax preparers” is jeopardizing those refunds for many low-income families. Astonishingly, more than half of the 79 million returns filed in 2011 were completed by paid preparers who were entirely unregulated. And all too often, these unregulated tax preparers are using tax season as an illicit profit-making enterprise, illegally claiming tax breaks for their taxpayer clients and keeping a share of the haul.

The Obama administration has, sensibly, attempted to implement regulations that would allow the Internal Revenue Service to regulate tax preparers. But earlier this year, a federal court struck down the regs as beyond the IRS’s regulatory authority.

Some tax preparers are vociferously opposed to having their industry regulated. Hysterically, one itinerant tax preparer complained to the author of the Times report that, “Each year it’s getting tighter and tighter…It’s hard to defraud the government now.” But a recent report from the National Taxpayer’s Advocate—a position created to represent the interests of individual taxpayers in their dealings with tax administrators—concludes that there is currently no “meaningful IRS oversight of preparers” at all, and calls for reforms mirroring those sought by the IRS’s now-discontinued attempts to regulate the industry.

The good news is that Congress can easily enact legislation that achieves the regulatory goals President Obama has proposed. In fact, Obama’s proposed budget for the upcoming fiscal year includes such a measure. Senate Finance Committee Chair Ron Wyden has scheduled a hearing on predatory tax preparers for today, saying that “there should be a floor of basic consumer protection and fairness” for low-income taxpayers depending on tax filing assistance.

Congress has, laudably, enacted a variety of targeted tax breaks designed to reduce the federal income tax’s impact on middle- and low-income families. These families deserve an infrastructure of tax preparers that they can trust to help them claim the tax breaks to which they are entitled.