Senate Republicans balk at proposal to increase IRS power

Senate Republicans are balking a proposal giving the IRS more power to regulate paid tax preparers, undercutting consideration of a broader measure aimed at battling tax refund fraud.

Finance Chairman Orrin Hatch (R-Utah) officially pulled back on his committee’s consideration of the tax measure on Wednesday morning, just hours before the mark-up was scheduled to begin. 

{mosads}Several Republicans on the committee said the central reason for the delay was objections to the proposal to give the IRS more authority in the wake of the agency’s singling out of Tea Party groups.

“There wasn’t a lot of discussion beforehand, and I think Sen. Hatch was maybe a little bit surprised at the questions that had been raised about extending IRS authority to regulate tax preparers,” said Senate Majority Whip John Cornyn (R-Texas), a member of the tax-writing panel. “So we’re going back to the drawing board.”

Hatch crafted the bill with the Finance panel’s top Democrat, Sen. Ron Wyden (D-Ore.), who specifically pushed for the proposal for more oversight over paid tax preparers. The IRS says that, while most paid preparers are honest, some are in business only to steal identities and refunds from the government.

The Government Accountability Office said fraudsters received around $5.8 billion in refunds in 2013, even as the IRS put a stop to many other potential fake claims.

But while stopping tax return fraud and cracking down on unscrupulous preparers has bipartisan support, many Republicans are deeply skeptical about giving the IRS more power and resources in the wake of the Tea Party controversy that broke in 2013.

Such a proposal was especially tough for Senate Republicans to swallow after the Finance Committee released a report last month in which the GOP asserted that the Obama administration’s own political views pushed the IRS to improperly scrutinize conservative groups.

Sen. Chuck Grassley (R-Iowa), a former Finance Committee chairman, said Republicans couldn’t get on board with giving the IRS “such a sweeping delegation of authority.”

“Over the last 70 years, we’ve delegated too much authority to these faceless bureaucrats. Although I guess Lois Lerner isn’t faceless anymore,” he added, referring to the former IRS official at the center of the Tea Party investigations.

Congressional Democrats have repeatedly said that there’s no evidence that political bias caused the IRS’s actions. But if anything, House Republicans have taken an even harder line than the Senate GOP on the IRS’s treatment of Tea Party groups, and the idea of giving the tax agency more funding and power.

The Finance Committee’s decision to delay consideration of the bill came a day after advocates for certified public accountants raised objections to the tax preparer proposal, and some aides speculated that could have played a role in senators taking a second look at the measure.

A spokeswoman for the American Institute of CPAs declined to comment. The group said Tuesday that it was concerned that greater IRS regulation of paid tax preparers would confuse taxpayers about their options for getting tax help.

Finance Committee aides said that the broader tax fraud measure, released Friday, was circulated among staffers before lawmakers left for August recess. But some Republicans on the tax panel said they had just found out that the proposal gave the IRS greater regulatory authority.

“This thing was kind of a late bloomer,” said Sen. Dan Coats (R-Ind.), who heard about the bill from his staff over the weekend.

Still, the idea of giving the IRS more latitude to regulate tax preparers is hardly new, and the Senate bill isn’t the first legislative proposal on the matter. The agency had started up its own program to license and educate preparers before a federal court ruled last year that the initiative needed congressional approval. 

The judiciary rejected the IRS’s claim that it had the authority to start the program because of a statute from the late 19th century that allowed the Treasury Department to regulate agents. That statute dealt with soldiers who had lost their horses in the Civil War.

A Finance spokesman said that Hatch would bring the tax fraud bill back after changes are made. But it remains to be seen whether Republicans and Democrats can find common ground over regulating tax preparers even though both sides acknowledge there’s a problem.

“A number of our members weren’t fully prepared, I think, to vote on the bill given the implications that it had for the IRS,” said Sen. John Thune (S.D.), a Finance member and the Senate’s No. 3 Republican. 

Thune added that changes to the bill would be the only way to shore up GOP support. “If they want to move that legislation, they probably can get it back on the track,” he said about Hatch and his staff.