IRS: 90% of Taxpayers Seek Help in Preparing Their Returns

April 9, 2014 - 6:09 AM

John Koskinen

IRS Commissioner John Koskinen at his nomination hearing. (AP photo)

(CNSNews.com) - Over the past 20 years, an increasing number of American taxpayers -- bewildered by "the increasing complexity of tax law" and "confusion over how to comply with the tax code" -- have sought help in preparing their income tax returns, IRS Commissioner John Koskinen told the Senate Finance Committee on Tuesday.

According to Koskinen, about 80 million returns, or 56 percent of the total individual tax returns filed each year, are done by paid preparers. Another 34 percent of taxpayers use tax preparation software, making a total of 90 percent of taxpayers who seek some form of assistance.

Koskinen wants Congress to authorize the IRS to regulate all paid tax return preparers, so it can root out incompetence and fraud.

Right now, the IRS cannot set minimum standards for tax preparers -- "so all we can do for taxpayers, which we do do, is say you should 'be careful.' Make sure you know who the tax preparer is and what their background and experience is," Koskinen said.

In his opening statement, Kokinen said the IRS continues to do compliance checks on some tax preparers, making visits to thousands of preparers around the country and penalizing those who made "egregious errors."

"A major focus of our return preparer compliance strategy involves preparers who prepare large numbers of returns containing claims for the Earned Income Tax Credit (EITC)," Koskinen said.

He estimated that "about 60 percent of EITC returns are done by paid tax return preparers." The credit -- which sends money to low-income workers who owe no tax -- is easily abused, and Koskinen said the IRS conducts field audits to make sure tax preparers "are performing due diligence to ensure that individuals claiming the EITC are in fact eligible for the credit."

Rep. John Thune (R-S.D.) noted that "incredible complexity of the tax code" already is forcing Americans to turn to tax preparers, and he said things will only get more complicated as Obamacare provisions kick in, driving even more Americans to get help with their returns.

"I think we're going to have a lot of questions by preparers and taxpayers about the Affordable Care Act," Koskinen agreed."The vast majority of Americans are going to be unaffected by it. They're going to check off a box that says they have insurance, they've got Medicare, and they won't be affected.

"But for the people who are...applying for insurance, getting advance premium credits, there are going to be questions asked. One of our concerns is to make sure we're prepared to answer those questions."

Tax code complexity is an issue for Congress, Committee Chairman Sen. Ron Wyden (D-Ore.) told the hearing:

"I very much appreciate that you're highlighting complexity of the code, because Congress is not blameless here," Wyden said.

"Virtually every session, some other group comes up...and what happens here on the Finance Committee, we just add it to the code. There have been something like 15,000 changes -- it comes to maybe one or two for every working day in recent years, and so that's right at the heart of tax reform."

Wyden says he's a "firm believer" in comprehensive tax reform that would make filing easier for everyone.

Sen. Johnny Isakson (R-Ga.) told Wyden he agrees that "tax simplification is the key to this."