Tax Preparers: Oregon's Regulatory Regime May Lead to Improved Federal Tax Return Accuracy and Provides a Possible Model for National Regulation
Highlights
Millions of taxpayers use paid tax return preparers and many of these paid preparers are not subject to any qualification requirements. Paid preparers in California and Oregon are exceptions in that these states have set paid preparer qualification standards. Additionally, two bills before Congress would require national paid preparer regulations. To help Congress better understand the potential costs and revenue effects of regulating paid preparers, GAO was asked to study (1) how IRS, California, Oregon, and other states regulate paid preparers, (2) how the accuracy of federal tax returns from California and Oregon compare to other returns, and (3) state-level costs and benefits of the California and Oregon programs and insights they provide for a possible national program. GAO analyzed IRS research data on tax return accuracy; interviewed IRS officials, state administrators, and preparer community representatives; and reviewed relevant documents.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| If Congress judges that the Oregon paid preparer regulatory regime is likely to account for at least a modest portion of the higher accuracy of Oregon federal tax returns and could be implemented nationwide at a favorable cost compared to the potential benefits of improved accuracy, it may wish to consider adopting a similar regime nationwide. In light of the uncertainty about the extent to which Oregon's regime improves tax return accuracy, if Congress enacts national paid preparer legislation, it may wish to also require IRS to evaluate its effectiveness. |
Closed – Implemented
|
Beginning in June 2009, IRS conducted a Return Preparer Review to identify issues in the tax return preparer community. IRS solicited input from GAO, tax return preparers, consumer advocacy groups, and the public. In January 2010, IRS announced completion of that review and the beginning of several initiatives to strengthen the competency of tax return preparers and IRS oversight of the preparer community. The IRS initiatives incorporate the majority of the preparer regulations in place in the state of Oregon that we studied in our 2008 report. |