Accounting
IRS proposes banning contingency fees
The Treasury Department and the Internal Revenue Service have proposed amendments to Circular 230, which governs practice before the IRS. The amendments are the most extensive since 2014, and cover significant developments which have affected practice before the service since that time.
The proposed regulations would remove or update the parts of Circular 230 that related to registered tax return preparers and tax return preparation, as well as contingent fees to reflect changes in the law since the prior amendments to Circular 230 in 2011 and 2014. The regs would also revise or eliminate other provisions that are out of date.
The proposed regulations would incorporate new provisions that better align Circular 230 with the current practice environment, such as requiring that practitioners maintain technological competency as part of their practice before the IRS. They would also clarify some provisions, such as confirming that the IRS Office of Professional Responsibility retains jurisdiction over practitioners who have been suspended or disbarred from practice. (The OPR generally is in charge of matters related to practitioner conduct, and is exclusively responsible for discipline, including disciplinary proceedings and sanctions.) And finally, they would provide rules related to appraisers, including the standards for disqualification.
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The provisions regarding tax return preparation and registered tax return preparers are in response to the IRS loss in Loving v. IRS, according to John Sheeley, founder of Tax Practice Pro. The Loving court denied the IRS the authority to regulate tax return preparers. The provisions in Circular 230 eliminate provisions related to registered tax return preparers, and revise standards for tax return preparation tied to IRS representation, while updating the definition of “practice before the IRS.”
The proposed revision to Circular 230 establishes that charging contingent fees for preparing returns or refund claims constitutes disreputable conduct. This language, which removes the ability of practitioners to charge contingency fees, will likely generate some opposition, according to Bill Nemeth, NAEA Education foundation trustee and immediate past chair.
“If a client gives me a return to do and I discover that their previous year’s return was incorrect and they may be able to get a larger refund, I should be able to amend their previous return for a percentage of the refund,” he said. “I don’t want to do the work for free, and the client has no guarantee that they will collect. So they have nothing to lose, and I can do the additional work knowing that I might get an additional reward.”
“As for contingency fees on first-time abatement, the language in the proposed revision is so murky that I’m not smart enough to figure out if it’s allowed or not,” Nemeth said.
The revisions to Circular 230 create a new Subpart D specifically addressing appraiser standards. It establishes a new framework for appraiser disqualification, and eliminates the prerequisite of penalty assessment for appraiser disqualification.
The revisions add a requirement for practitioners to maintain technological competence, and require data security policies and incident response plans. They also mandate business continuity and succession planning, and they update written advice standards.
The revision expedites suspension by expanding the grounds for expedited suspension, clarifying procedures for reinstatement, and by maintaining IRS jurisdiction over suspended practitioners, said Tax Practice Pro’s Sheeley.
The House unanimously passed four bipartisan bills Tuesday concerning taxes and the Internal Revenue Service that were all
- H.R. 1152, the Electronic Filing and Payment Fairness Act, sponsored by Rep. Darin LaHood, R-Illinois, Suzan Delbene, D-Washington, Randy Feenstra, R-Iowa, Brad Schneider, D-Illinois, Brian Fitzpatrick, R-Pennsylvania and Jimmy Panetta, D-California. The bill would apply the “mailbox rule” to electronically submitted tax returns and payments to allow the IRS to record payments and documents submitted to the IRS electronically on the day the payments or documents are submitted instead of when they are received or reviewed at a later date. The AICPA believes this would offer clarity and simplification to the payment and document submission process while protecting taxpayers from undue penalties.
- H.R. 998, the Internal Revenue Service Math and Taxpayer Help Act, sponsored by Rep. Randy Feenstra, R-Iowa, and Brad Schneider, D-Illinois, which would require notices describing a mathematical or clerical error to be made in plain language, and require the Treasury to provide additional procedures for requesting an abatement of a math or clerical error adjustment, including by telephone or in person, among other provisions.
- H.R. 517, the Filing Relief for Natural Disasters Act, sponsored by Rep. David Kustoff, R-Tennessee, and Judy Chu, D-California. The process of receiving tax relief from the IRS following a natural disaster typically must follow a federal disaster declaration, which can often come weeks after a state disaster declaration. The bill would provide the IRS with authority to grant tax relief once the governor of a state declares either a disaster or a state of emergency and expand the mandatory federal filing extension under Section 7508(d) of the Tax Code from 60 days to 120 days, providing taxpayers with more time to file tax returns after a disaster.
- H.R. 1491, the Disaster related Extension of Deadlines Act, sponsored by Rep. Gregory Murphy, R-North Carolina, and Jimmy Panetta, D-California, would extend the amount of time disaster victims would have to file for a tax refund or credit (i.e., the lookback period) by the amount of time afforded pursuant to a disaster relief postponement period for taxpayers affected by major disasters. This legislative solution would place taxpayers on equal footing as taxpayers not impacted by major disasters and would afford greater clarity and certainty to taxpayers and tax practitioners regarding this lookback period.
“The AICPA has long supported these proposals and will continue to work to advance comprehensive legislation that enhances IRS operations and improves the taxpayer experience,” said Melanie Lauridsen, vice president of tax policy and advocacy for the AICPA, in a statement Tuesday. “We are pleased to work closely with each of these Representatives on common-sense reforms that will benefit taxpayers, tax practitioners and tax administration and we’re encouraged by their passage in the House. We look forward to continuing to work with Congress to improve the taxpayer experience.”
The bills were also included in a recent Senate
The House also passed two other tax-related bills Tuesday that weren’t endorsed in the recent AICPA letter.
- H.R. 1155, Recovery of Stolen Checks Act, sponsored by Rep. Nicole Malliotakis, R-New York, would require the IRS to create a process for taxpayers to request a replacement via direct deposit for a stolen paper check. If a check is determined to be stolen or lost, and not cashed, a taxpayer will receive a replacement check once the original check is cancelled, but many taxpayers are having their replacement checks stolen as well. Taxpayers who have a check stolen are then unable to request that the replacement check be sent via direct deposit. The bill would require the Treasury to establish processes and procedures under which taxpayers, who are otherwise eligible to receive an amount by paper check in replacement of a lost or stolen paper check, may elect to receive such amount by direct deposit.
- H.R. 997, National Taxpayer Advocate Enhancement Act, sponsored by Rep. Randy Feenstra, R-Iowa, would prevent IRS interference with National Taxpayer Advocate personnel by granting the NTA responsibility for its attorneys. In advocating for taxpayer rights, the National Taxpayer Advocate often requires independent legal advice. But currently, the staff members hired by the National Taxpayer Advocate are accountable to internal IRS counsel, not the Taxpayer Advocate, creating a potential conflict of interest to the detriment of taxpayers. The bill would authorize the National Taxpayer Advocate to hire attorneys who report directly to her, helping establish independence from the IRS.
House Ways and Means Committee Chairman Jason Smith, R-Missouri, applauded the bipartisan House passage of the various bills, which had been unanimously passed by the committee.
“President Trump was elected on the promise of finally making the government work better for working people,” Smith said in a statement Tuesday. “This bipartisan legislation helps fulfill that mandate and makes improvements to tax administration that will make it easier for the American people to file their taxes. Those who are rebuilding after a natural disaster particularly need help filing taxes, which is why this set of bills lightens the load for taxpayers in communities struck by a hurricane, tornado or some other disaster. With Tax Day just a few days away, we must look for common-sense, bipartisan ways to make filing taxes less of a hassle.”
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