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 HatchOrrin HatchA bipartisan bright spot we can’t afford to pass up: child welfare reform Medicare trust fund running out of money fast Long past time to fix evidence-sharing across borders MORE (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. 

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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 CornynJohn CornynMcConnell tees up House Puerto Rico bill Dem senator urges support for House Puerto Rico bill GOP senator praises Supreme Court's abortion ruling MORE (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 WydenRon WydenSenate Dem blocks intelligence authorization over FBI surveillance A bipartisan bright spot we can’t afford to pass up: child welfare reform Republican chairman: Our tax reform plan fits with Trump's vision MORE (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 GrassleyChuck GrassleyOvernight Tech: Judiciary leaders question internet transition plan | Clinton to talk tech policy | Snowden's robot | Trump's big digital push Dozens of senators push EPA for higher ethanol mandate Civil liberties group mobilizes against surveillance amendment MORE (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 CoatsDan CoatsBipartisan gun measure survives test vote Senate panel advances nominee who Democrats blasted on Social Security Lobbying World MORE (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 ThuneJohn ThuneGOP senator on Trump’s VP hunt: 'I know nothing’ Week ahead: Senate panel takes up location data bill Republicans question Trump's trip to Scotland MORE (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.