There’s a lot that we already know about President Biden’s American Families Plan (AFP). With an estimated budget of $1.8 trillion, this infrastructure proposal would raise the top income tax rate to 39.6 percent and eliminate the lower capital gains rate for households earning over $1 million a year. The AFP would also provide many lower-to-middle class families with much needed financial relief from things such as childcare and college debt. However, one of the less-discussed parts of the American Families Plan is how it will give the IRS more power in regulating and certifying all tax preparers in the U.S., regardless of whether they are affiliated with a CPA firm. Read more to see what this means for you and your tax preparation process.
The Current Problem with Uncertified Tax Preparers
Apart from two states in the U.S., it is not currently required by law for a tax preparer to show any proof of accounting certification. Consequentially, many tax returns made by certain preparers have higher error rates, charge their clients larger fees than necessary, and expose them to costly audits since they are not certified accountants. Of course, this also means that there is a massive difference in the competencies of a certified versus an uncertified preparer. The 2010 IRS Commissioner, John Koskinen, launched a program back when he was still the head that he called the Tax Return Prep Initiative. This program required all paid tax preparers, excluding CPA firms, attorneys, and other enrolled agents, to pass a competency exam to test their skills on filing tax returns. More than a quarter of the group who took the test flunked it.
What is even more troubling is that these uncertified tax preparers submit more tax returns than all other types of preparers combined. According to a report conducted in 2018 by Nina Olsen, these unenrolled tax preparers account for more than half of all paid tax preparation for individual returns. Not to mention, the costly mistakes that are made by unenrolled tax preparers are not always on accident, either. With the new phenomenon of ghost tax preparers and other unethical forms of tax preparation, it is startlingly easy for an uncertified tax preparer to intentionally defraud customers for their own benefit.
At this point in time, the IRS cannot do a whole lot about these uncertified preparers. After the ruling verdict of the 2012 trial of Loving v. Commissioner, it was determined that only the United States Congress would have the ability to regulate certified and uncertified preparers. Such ability was never given to the IRS by Congress, and the IRS itself could not grant itself this power either. In response to the verdict, the IRS shut down the Tax Return Prep Initiative and created the Annual Filing Season Program. Now, uncertified preparers can voluntarily get a recognizable completion record and have their name filed in the IRS tax preparer database. However, there is still a very clear percentage of tax preparers who are not willing to volunteer to be a part of the Annual Filing Season Program since there is still such a high rate of uncertified tax preparers on the market today. Passing the American Families Plan would usher in another new era of accounting and tax preparation for the IRS that could help curb more faulty tax returns from occurring and keep clients from being subjected to costly audits at the hands of their uncertified tax preparers.
AFP and Tax Preparers
The American Families Plan would change the accounting world in a couple of ways. Firstly, it would usher in a new program, led and regulated by the IRS, known as the Tax Return Preparer Program. In accordance with this program, all tax preparers in the U.S., certified or not, would need required registration, testing, and regular attendance of courses that would continue their education in accounting. This plan would also give the IRS legal authority to implement safeguards in the tax industry. This means that Congress would be recognizing and relinquishing their power of regulation to the hands of the IRS. The Tax Return Preparer Program would also include stiffer penalties for any unethical tax preparation practices.
President Biden also hopes that this plan could help end tax evasion practices, especially those that are mainly done in large corporations by having them keep their accountants on file. And he also hopes that this program will generate more income for the United States by providing its people with more accurate return rates and fewer audits. In fact, Biden estimates that this plan would raise $700 billion over the next ten years for the country if the program is properly implemented.
Cons to the Tax Return Preparer Program
It goes without saying that the American Families Plan, and consequentially the Tax Return Preparer Program, has already been generating a lot of debate and pushback in Congress for many reasons. Ed Zollars, a partner at CPA firm Thomas, Zollars & Lynch, writes in his Current Federal Tax Developments blog for Kaplan Financial Education that “It’s not clear how much congressional support would exist for passing this proposal ‘as is’ and history suggests that there will be modifications, many likely significant, made to any bill if it becomes law — another thing that is far from a certainty.” There are a couple reasons for this pushback from law makers. The main two reasons are that there are a multitude of complicated formulas for what American citizens would benefit from the AFP; and
, many state governments have voiced concerns over how much they would have to spend for the plan to accomplish all of Biden’s goals that he hopes to achieve with this program.
Find the Right Certified Accountant for You
Despite much of the discourse that’s surrounding the American Families Plan, one thing is certain: the Tax Return Preparer Program is a direct response to a growing problem in the accounting profession, which is that many uncertified tax preparers lack the skills, knowledge, and competency to make accurate tax returns for their clients. At Lawhorn CPA, our team of professional, certified accountants will not only keep you up to date and help you understand all the latest federal tax developments, but we also will provide you with quality tax preparation and bookkeeping services that are specifically tailored to your needs. Because we don’t want to be just your accounting firm, we want you to think of us as your team. If you’re looking for a group of seasoned tax preparers, accountants, or bookkeepers who will help you to plan and execute your own tax strategy, call us at 865-212-4867 or contact us online today.