Protecting Taxpayers from Ghost Preparers Act

This bill would limit the Internal Revenue Service's ability to assess taxes indefinitely in cases of fraud to only those instances where the taxpayer intended to evade taxes. It clarifies that the statute of limitations for tax assessments would not be extended indefinitely if a tax preparer submits fraudulent information without the taxpayer's knowledge. Additionally, the bill proposes to expand existing penalties for tax return preparers to include the submission of false or fraudulent documents that claim to be official federal tax returns or partnership adjustment reports.

This bill affects individual taxpayers who have had false or fraudulent tax returns filed on their behalf without their knowledge or intent to evade taxes. It also impacts tax return preparers, who may face expanded penalties for submitting fraudulent documents such as tax returns, partnership administrative adjustment requests, or partnership adjustment tracking reports. Additionally, the Internal Revenue Service (IRS) is affected by new limitations on the timeframe allowed to assess taxes in specific cases of preparer fraud.

• Limitation on the tax assessment fraud exception. The bill stipulates that the IRS may only assess taxes indefinitely in cases of fraud if the taxpayer specifically intended to evade taxes. This clarifies that the fraud exception to the standard three-year statute of limitations does not apply when a tax preparer acts fraudulently without the taxpayer's knowledge.
• Expansion of tax return preparer penalties. The legislation broadens the scope of documents subject to preparer penalties to include those purporting to be federal tax returns, partnership administrative adjustment requests, or partnership adjustment tracking reports. This allows for penalties even if the documents are not considered valid submissions to the IRS.

The bill modifies the Internal Revenue Service's statute of limitations for assessing taxes by limiting the fraud exception to cases where the taxpayer intends to evade taxes, addressing conflicting judicial interpretations of existing law. Additionally, it expands the scope of existing penalties for tax return preparers to include fraudulent documents that purport to be federal tax returns or specific partnership reports.

The bill aims to protect taxpayers by limiting the IRS's ability to assess taxes indefinitely in cases where a tax return preparer committed fraud without the taxpayer's knowledge or intent to evade taxes. Additionally, it seeks to increase accountability for tax return preparers by expanding the types of fraudulent documents subject to penalties.