IRS to halt ERC Claims
Legislation seeking to grant the Internal Revenue Service authority to regulate tax preparation services has been reintroduced in Congress, continuing a long-standing effort to establish industry-wide standards—but it comes at a time when the agency is facing unprecedented staffing challenges.
Representative Steve Cohen (D-Tennessee) has put forward the Tax Return Preparer Accountability Act (H.R. 1983), which would empower the IRS to implement "minimum standards for accuracy and fairness" for tax preparation services. The bill was referred to the House Ways and Means Committee following its introduction on March 10.
Key Provisions
The proposed legislation would:
Direct the IRS to develop an automated formula identifying taxpayers at risk of economic hardship
Authorize the establishment of minimum competency standards for federal tax return preparers
Grant the IRS power to revoke identification numbers from sanctioned preparers
Mandate security controls for tax software providers, including regular updates to security standards
"Most tax preparers are honest and trustworthy but, unfortunately, we've all heard or read about unscrupulous tax preparers who take advantage of customers or assist clients in claiming deductions to which they are not entitled," Cohen stated. "To guarantee that taxpayers get the quality service they deserve, the Tax Return Preparer Accountability Act will permit the IRS to establish minimum standards for accuracy and fairness."
Implementation Challenges Amid Staff Reductions
The proposed regulations come as the IRS faces significant staffing reductions under the Trump administration's Department of Government Efficiency (DOGE) initiative. Whether the agency loses 7% of its workforce or as much as half of its 90,000 employees, the cuts will substantially impact its operational capacity.
"There's no exact number yet," explains David Shapiro, partner and chair of the tax, compensation and benefits practice at Saul Ewing LLP. "They started by rescinding the offers of those who were scheduled to start, so that in the Office of Chief Counsel that included law students who were reviewing and drafting regs. Everyone who was probationary was terminated. In addition, there were a lot of IRS employees that accepted the deferred resignation offer. They don't think that a reduction of 7,000 is enough — they want to get rid of a total of 50,000. In the minds of most practitioners, that would be devastating."
Tax professionals are already experiencing the effects. Shapiro notes that colleagues seeking guidance from the Office of Chief Counsel have been told that due to lack of resources, they might not receive rulings on their questions. This raises serious concerns about how the IRS could implement new preparer standards while struggling with existing responsibilities.
Practical Implications for Tax Practitioners
The staff reductions are likely to create several compliance challenges:
Reduced Guidance: "They won't have enough people at the IRS to give taxpayers and preparers guidance on how to apply laws that are not clear on their face," Shapiro warns. "I'm most worried about unclear rules and no clear interpretation of rules, because they won't have the people they need to provide clear guidance."
- Fewer Audits but More Automated Notices: While audit frequency may decrease, the IRS may increasingly rely on automated notices and penalties to maintain compliance with fewer staff.
- Delayed Resolutions: "My real concern is that anything where you need people at the IRS will take more time," says Shapiro. This extends to private letter rulings, appeals conferences, and offers in compromise—all critical tools for tax practitioners seeking clarity or resolution for clients.
- Cases in Limbo: Ongoing audits and appeals face disruption as staff are terminated. Shapiro cites an example where an Appeals conference was halted after the Appeals officer was let go, leaving the case in limbo with no indication of when or how it would resume.
Historical Context
This represents the latest chapter in a protracted effort to regulate tax preparation services. The IRS Electronic Tax Administration Advisory Committee requested similar congressional action last year, and Cohen himself has introduced comparable legislation dating back to 2015.
The Obama administration previously attempted to implement the Registered Tax Return Preparer Program, which would have required registration, testing, and continuing education for preparers. However, this initiative was invalidated in 2013 following the Loving v. IRS lawsuit filed by independent tax preparers.
Since that legal setback, the IRS has maintained the voluntary Annual Filing Season Program while seeking legislative authority for mandatory oversight. The Biden administration included a similar proposal in its 2021 American Families Plan.
The legislation's prospects remain uncertain as it begins its journey through the congressional committee process—and its implementation would face significant hurdles given the agency's diminished workforce.
Christine Gervais is a licensed CPA, using her skills to help businesses grow and achieve their fullest potential. Christine has a Master’s degree in accounting from Southern New Hampshire University in addition to holding her CPA license for over a decade. Notably, Christine is a nationally recognized speaker providing education to other CPAs on how to best serve clients as well as instruction on a wide variety of topics for business owners on how to maximize success. Christine prides herself on the value she can bring to clients with her extensive tax knowledge and provides strategic, forward-thinking financial strategies to help clients grow. When not behind her desk, you can find Christine spending quality time with her daughter and stepson or tending to the family’s excessively loved farm animals.
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