Ensuring the use of valid preparer identification numbers and electronic filing identification numbers

(a) In general (1) Penalty Section 6695 is amended— (A) by striking subsection (c) and inserting the following: (c) Failure to furnish valid identifying number (1) In general (A) Penalty Any person who is a tax return preparer with respect to any return or claim for refund and who fails to furnish an identifying number which complies with section 6109(a)(4)(A) with respect to such return or claim shall pay a penalty of $250 for such failure. (B) Non-compliance For purposes of this paragraph, an identifying number shall be deemed to not comply with section 6109(a)(4)(A) if such identifying number— (i) is assigned to another person, (ii) does not exist, (iii) is inactive or expired, (iv) has been withdrawn, (v) is suspended or has been revoked, or (vi) is otherwise invalid for use by the tax return preparer. (2) Exception The penalty imposed under paragraph (1) shall not apply if it is shown that such failure is due to reasonable cause and not due to willful neglect. (3) Limitation The maximum penalty imposed under this subsection on any person with respect to documents filed during any calendar year shall not exceed $75,000., (B) by redesignating subsection (h) as subsection (i), (C) by inserting after subsection (g) the following new subsection: (h) Use of invalid or appropriated electronic filing identification number (1) In general Any person who is an electronic return originator with respect to any applicable electronically filed document who fails to meet the requirements of paragraph (2), with respect to such applicable electronically filed document, shall pay a penalty of $250 for such failure, unless it is shown that such failure is due to reasonable cause and not due to willful neglect. (2) Requirement The requirements of this paragraph are met if— (A) the electronic return originator uses an electronic filing identification number which is assigned to such person by the Secretary, and (B) in the case of any applicable electronically filed document filed after the date on which the program under paragraph (4) is established, the electronic filing identification number has been validated under such program at the time of the filing. (3) Definitions For purposes of this subsection— (A) Electronic return originator (i) In general The term electronic return originator means a person who originates the electronic submission of 1 or more applicable electronically filed documents. (ii) Exceptions The term electronic return originator shall not include a person merely because such person originates an electronic submission described in clause (i)— (I) by providing services which are limited to typing, reproduction, or other mechanical assistance, (II) at the direction of an employer (or of an officer or employee of the employer) by whom such person is regularly and continuously employed, (III) as a fiduciary, or (IV) in response to a determination by the Secretary that directly or indirectly affects the tax liability of a taxpayer. (B) Electronic filing identification number (i) In general The term electronic filing identification number means a unique identifier issued by the Secretary to authorize a person or entity to electronically file on behalf of other taxpayers— (I) any return of Federal tax, (II) any claim for a refund, and (III) except as provided by the Secretary, any other document required to be filed with the Secretary under this title. (ii) Suspension or revocation In the case of any electronic filing identification number which has been suspended or revoked by the Secretary, such number shall not be deemed valid for purposes of paragraph (1). (C) Applicable electronically filed document The term applicable electronically filed document means any document which is described in subclause (I), (II), or (III) of subparagraph (B)(i) and filed electronically on behalf of other taxpayers. (4) Electronic filing identification number validation program (A) In general Not later than 24 months after the date of the enactment of this paragraph, the Secretary shall establish and maintain a program for the validation of electronic filing identification numbers. (B) Timing and frequency of validation The Secretary shall validate an electronic filing identification number— (i) prior to the initial use of such electronic filing identification number for electronic filing, and (ii) at such intervals, or upon such events, as the Secretary determines appropriate, to ensure the continued validity and integrity of such electronic filing identification number. (C) Real-time validation system (i) In general The program established under this paragraph shall provide a real-time system for the validation of electronic filing identification numbers. (ii) System requirements The system provided under clause (i) shall— (I) provide immediate confirmation of the validity status of an electronic filing identification number, (II) identify whether an electronic filing identification number has been suspended, revoked, or compromised or is otherwise ineligible for the activity for which it is used, and (III) be designed to support secure, automated, and high-volume validation requests, including usage by large-scale tax preparation software systems. (D) Access The Secretary shall— (i) provide access to the system in such form and manner as the Secretary may prescribe, and (ii) accept a validation request only from a person authenticated and authorized in accordance with requirements prescribed by the Secretary and only with respect to an electronic filing identification number and electronic filing activity for which such person is authorized to request validation, whether on its own behalf or in connection with services provided to the person to whom the electronic filing identification number was issued., and (D) in subsection (i)(1), as redesignated by paragraph (2), by striking and (g) and inserting (g), and (h). (2) Requirement for filing software to provide for use of validation program Software which enables the electronic filing of applicable electronically filed documents (as defined in section 6695(h) of the Internal Revenue Code of 1986, as amended by paragraph (1)(C)) with the Secretary— (A) shall require validation of an electronic filing identification number (as defined in section 6695(h) of such Code, as amended by this section) under the program described in section 6695(h)(4) of such Code (as amended by this section) prior to the electronic filing of any applicable electronically filed document (as so defined) filed after the date such program has been established, and (B) shall not permit such electronic filing unless such electronic filing identification number has been validated under such program. (3) Validation program implementation plan and report (A) Implementation plan Not later than 180 days after the date of enactment of this section, the Secretary shall submit to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives an implementation plan for the program established under section 6695(h)(4) of the Internal Revenue Code of 1986 (as added by this subsection). Such plan shall include— (i) a description of the planned design and operation of the program, (ii) the implementation timeline, major milestones, and testing schedule, (iii) the categories of persons eligible to submit validation requests and the procedures for authorizing such persons, (iv) the proposed performance and reliability standards and contingency procedures, and (v) a description of the administrative, technical, and physical safeguards to prevent unauthorized discovery, enumeration, testing, or bulk verification of electronic filing identification numbers. (B) Post-implementation report Not later than 2 years after the date on which the program under section 6695(h)(4) of the Internal Revenue Code of 1986 (as added by this subsection) is established, the Secretary shall submit to the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives a report on the implementation and operation of the program. Such report shall include— (i) the performance of the program, including system availability, response times, and peak-volume performance, (ii) the number, duration, and effect on electronic filing of any material service disruptions, (iii) the aggregate number of validation requests and the aggregate number of affirmative, negative, and unable-to-validate responses, (iv) the nature and extent of any use of contingency procedures, (v) any material deviation from the implementation plan submitted under subparagraph (A), and the actions taken or planned to address such deviation, and (vi) any recommendations for administrative or legislative changes. (b) Modification of definition of tax return preparer Section 7701(a)(36) is amended— (1) by striking subparagraph (A) and inserting the following: (A) In general The term tax return preparer means any person who prepares for compensation, or who employs one or more persons to prepare for compensation, any return of tax imposed by this title, any document purporting to be a return of tax imposed by this title, or any claim for refund of tax imposed by this title. For purposes of the preceding sentence, the preparation of a substantial portion of a return, document purporting to be a return, or claim for refund shall be treated as if it were the preparation of such return, document purporting to be a return, or claim for refund., and (2) in subparagraph (B)— (A) in clause (ii), by striking return or claim for refund and inserting return, document purporting to be a return, or claim for refund, and (B) in clause (iii), by striking return or claim for refund and inserting return, document purporting to be a return, or claim for refund. (c) Prevention of inadvertent errors involving identifying numbers (1) In general Not later than 18 months after the date of enactment of this Act, the Secretary shall establish a program to improve voluntary compliance with respect to requirements under subsections (c) and (h) of section 6695 of the Internal Revenue Code of 1986 (as amended by this section) and avoid the imposition of penalties under such subsections. (2) Consultation The program described in paragraph (1) shall be established by the Secretary following consultation with— (A) the National Taxpayer Advocate, (B) qualified low-income taxpayer clinics that have received a grant under section 7526 of the Internal Revenue Code of 1986, and (C) other relevant stakeholders. (3) Opportunity to correct For purposes of the program described in paragraph (1), the Secretary shall— (A) prior to acceptance for processing, identify— (i) any return or claim for refund which has been electronically submitted and does not include an identifying number which complies with section 6109(a)(4)(A) of the Internal Revenue Code of 1986, and (ii) any return or claim for refund which has been electronically submitted and does not use an electronic filing identification number (as defined in section 6695(h)(3)(B) of such Code) or which uses an electronic filing identification number which been suspended, revoked, or compromised or is otherwise ineligible for the activity for which it is used, and (B) provide an opportunity for the person who submitted such return or claim for refund to avoid imposition of a penalty under subsection (c) or (h) of section 6695 of such Code, as applicable, if the correct identifying number or electronic filing identification number is provided. (d) Criminal penalty (1) In general Part I of subchapter A of chapter 75 is amended by adding at the end the following new section: 7218. Willful failure to provide a valid preparer identification number (a) In general Any tax return preparer who, with respect to any return, document purporting to be a return, or claim for refund willfully fails to furnish an identifying number which complies with section 6109(a)(4)(A) with respect to such return or document or willfully furnishes a preparer tax identification number which is described in section 6695(c)(1)(B) with intent to evade or defeat the application of any requirement under any provision of this title which requires such preparer to obtain and furnish such number, shall, in addition to any other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $50,000 ($100,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution. (b) Preparer tax identification number In this section, the term preparer tax identification number means an identifying number described in section 6109(a)(4)(A).. (2) Clerical amendment The table of sections for part I of subchapter A of chapter 75 is amended by adding at the end the following new item: Sec. 7218. Willful failure to provide a valid preparer identification number.. (e) Effective date The amendments made by this section shall apply to returns or claims for refund filed after the date which is 18 months after the date of enactment of this Act.