HR-9499-119
Received in the Senate and Read twice and referred to the Committee on Finance.
Sponsored by Nicole Malliotakis (R-NY)
What it does
This bill would make three targeted changes to the Internal Revenue Code. First, it would expand the definition of a "return" for purposes of tax preparer penalties to include any document that purports to be a tax return, administrative adjustment request, or partnership tracking report — closing a loophole that "ghost preparers" use by submitting altered documents not technically classified as returns. Second, it would clarify that the unlimited statute of limitations for fraudulent returns applies only when the taxpayer — not a preparer — committed the fraud, protecting innocent taxpayers from extended IRS assessment windows caused by their preparer's misconduct. Third, it makes a minor technical correction renumbering a subsection of the disaster deadline extension law.
Who benefits
Taxpayers who unknowingly use fraudulent or "ghost" preparers — individuals who prepare returns without signing them or who alter returns after the taxpayer signs. Low- and moderate-income filers who rely on paid preparers and may be less equipped to detect alterations. Taxpayers currently exposed to an unlimited IRS audit window due solely to their preparer's fraud, who would gain protection under the statute of limitations fix. Legitimate, licensed tax preparers who compete against unscrupulous preparers. The IRS, which would gain clearer enforcement authority over altered documents.
Who is hurt
Unregistered or unscrupulous tax preparers who currently exploit the gap in the definition of "return" to avoid penalties. Preparers who alter returns after signing — such as inflating refunds and pocketing the difference — would face new or expanded civil penalties. There are no obvious broad groups of ordinary taxpayers or businesses negatively affected by this bill.
Supporters argue
Supporters argue that "ghost preparers" — those who prepare returns without signing them or who alter returns after taxpayer review — represent a documented and growing IRS enforcement problem, with the agency flagging thousands of such cases annually. They contend that the current statutory definition of "return" creates an unintended loophole that allows bad actors to escape preparer penalties by submitting altered documents, and that the statute of limitations fix is a basic fairness correction: innocent taxpayers should not face an unlimited IRS assessment window because of fraud they did not commit and could not have detected.
Opponents argue
Opponents argue that the bill's expansion of the "return" definition, while well-intentioned, may create ambiguity about which documents trigger preparer penalties, potentially exposing preparers to liability for amended or corrected filings that are routine and non-fraudulent. They also contend that limiting the extended statute of limitations to taxpayer-committed fraud — rather than any fraud on the return — could make it harder for the IRS to pursue complex preparer fraud schemes where the taxpayer's role is difficult to disentangle, potentially narrowing the government's enforcement tools in cases involving sophisticated misconduct.
Constitutional context
No significant constitutional issues are raised by this bill. It is a targeted amendment to existing IRS penalty and statute of limitations provisions under Congress's broad taxing authority in Article I, Section 8. The Due Process Clause (Fifth Amendment) is tangentially relevant — the statute of limitations fix actually moves in the direction of greater due process protection for taxpayers by limiting retroactive exposure caused by third-party fraud.
Checks and balances
Congress modifies the penalty and limitations framework; the IRS (executive branch) retains enforcement authority under the expanded definitions; taxpayers and preparers may challenge penalty assessments through existing IRS appeals processes and federal courts.
Historical precedent
The IRS has long pursued "ghost preparer" enforcement through existing penalty provisions, but no prior federal statute has specifically expanded the definition of "return" to cover improperly altered documents for penalty purposes.