To assist low-income taxpayers in preparing and filing their tax returns and to protect taxpayers from unscrupulous refund anticipation loan providers, and for other purposes.

February 17, 2005

Mr. BECERRA (for himself and Mr. BROWN of Ohio) introduced the following bill; which was referred to the Committee on Ways and Means, and in addition to the Committee on Financial Services, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

To assist low-income taxpayers in preparing and filing their tax returns and to protect taxpayers from unscrupulous refund anticipation loan providers, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Low-Income Taxpayer Protection Act of 2005'.

SEC. 2. REGULATION OF INCOME TAX RETURN PREPARERS AND REFUND ANTICIPATION LOAN PROVIDERS.

(a) DEFINITIONS- In this Act:

(1) INCOME TAX RETURN PREPARER-

(A) IN GENERAL- The term `income tax return preparer' means any individual who is an income tax return preparer (within the meaning of section 7701(a)(36) of the Internal Revenue Code of 1986) who prepares not less than 5 returns of tax imposed by subtitle A of such Code or claims for refunds of tax imposed by such subtitle A per taxable year.

(B) EXCEPTION- Such term shall not include a federally authorized tax practitioner within the meaning of section 7526(a)(3) of such Code.

(2) REFUND ANTICIPATION LOAN PROVIDER- The term `refund anticipation loan provider' means a person who makes a loan of money or of any other thing of value to a taxpayer because of the taxpayer's anticipated receipt of a Federal tax refund.

(3) SECRETARY- The term `Secretary' means the Secretary of the Treasury.

(b) REGULATIONS-

(1) REGISTRATION REQUIRED-

(A) IN GENERAL- Not later than 120 days after the date of the enactment of this Act, the Secretary shall promulgate regulations that--

(i) require the registration of income tax return preparers and of refund anticipation loan providers with the Secretary or the designee of the Secretary, and

(ii) prohibit the payment of a refund of tax to a refund anticipation loan provider or an income tax return preparer that is the result of a tax return which is prepared by the refund anticipation loan provider or the income tax return preparer which does not include the refund anticipation loan provider's or the income tax return preparer's registration number.

(B) NO DISCIPLINARY ACTION- The regulations shall require that an applicant for registration must not have demonstrated any conduct that would warrant disciplinary action under part 10 of title 31, Code of Federal Regulations.

(C) BURDEN OF REGISTRATION- In promulgating the regulations, the Secretary shall minimize the burden and cost on the registrant.

(2) RULES OF CONDUCT- All registrants shall be subject to rules of conduct that are consistent with the rules that govern federally authorized tax practitioners.

(3) REASONABLE FEES AND INTEREST RATES- The Secretary, after consultation with any expert as the Secretary deems appropriate, shall include in the regulations guidance on reasonable fees and interest rates charged to taxpayers in connection with loans to taxpayers made by refund anticipation loan providers.

(4) RENEWAL OF REGISTRATION- The regulations shall determine the time frame required for renewal of registration and the manner in which a registered income tax return preparer or a registered refund anticipation loan provider must renew such registration.

(5) FEES-

(A) IN GENERAL- The Secretary may require the payment of reasonable fees for registration and for renewal of registration under the regulations.

(B) PURPOSE OF FEES- Any fees required under this paragraph shall inure to the Secretary for the purpose of reimbursement of the costs of administering the requirements of the regulations.

(c) PROHIBITION- Section 6695 of the Internal Revenue Code of 1986 (relating to other assessable penalties with respect to the preparation of income tax returns for other persons) is amended by adding at the end the following new subsection:

`(h) ACTIONS ON A TAXPAYER'S BEHALF BY A NON-REGISTERED PERSON- Any person not registered pursuant to the regulations promulgated by the Secretary under the Low Income Taxpayer Protection Act of 2005 who--

`(1) prepares a tax return for another taxpayer for compensation, or

`(2) provides a loan to a taxpayer that is linked to or in anticipation of a tax refund for the taxpayer,

shall be subject to a $500 penalty for each incident of noncompliance.'.

(d) COORDINATION WITH SECTION 6060(a)- The Secretary shall determine whether the registration required under the regulations issued pursuant to this section should be in lieu of the return requirements of section 6060.

(e) PAPERWORK REDUCTION- The Secretary shall minimize the amount of paperwork required of an income

tax return preparer or a refund anticipation loan provider to meet the requirements of these regulations.

SEC. 3. IMPROVED SERVICES FOR TAXPAYERS.

(a) ELECTRONIC FILING EFFORTS-

(1) IN GENERAL- The Secretary shall focus electronic filing efforts on benefiting the taxpayer by--

(A) reducing the time between receipt of an electronically filed return and remitting a refund, if any,

(B) reducing the cost of filing a return electronically,

(C) improving services provided by the Internal Revenue Service to low- and moderate-income taxpayers,

(D) providing tax-related computer software at no or nominal cost to low- and moderate-income taxpayers, and

(E) providing electronic filing for all taxpayers without the use of an intermediary.

(2) REPORT- Not later than 120 days after the date of the enactment of this Act, the Secretary shall prepare and submit to Congress a report on the efforts made pursuant to paragraph (1).

(b) VOLUNTEER INCOME TAX ASSISTANCE PROGRAM-

(1) STUDY- The Secretary shall undertake a study on the expansion of the volunteer income tax assistance program to service more low-income taxpayers.

(2) REPORT- Not later than 120 days after the date of the enactment of this Act, the Secretary shall prepare and submit to Congress a report on the study conducted pursuant to paragraph (1).

(c) TELE-FILING- The Secretary shall ensure that tele-filing is available for all taxpayers for the filing of tax returns with respect to taxable years beginning in 2004.

(d) TERMINATION OF THE DEBT INDICATOR PROGRAM- The Secretary shall terminate the Debt Indicator program announced in Internal Revenue Service Notice 99-58.

(e) DIRECT DEPOSIT ACCOUNTS- The Secretary shall allocate resources to programs to assist low-income taxpayers in establishing accounts at financial institutions that receive direct deposits from the United States Treasury.

(f) PILOT PROGRAM FOR MOBILE TAX RETURN FILING OFFICES-

(1) IN GENERAL- The Secretary shall establish a pilot program for the creation of four mobile tax return filing offices with electronic filing capabilities.

(2) LOCATION OF SERVICE-

(A) IN GENERAL- The mobile tax return filing offices shall be located in communities that the Secretary determines have a high incidence of taxpayers claiming the earned income tax credit.

(B) INDIAN RESERVATION- At least one mobile tax return filing office shall be on or near an Indian reservation (as defined in section 168(j)(6) of the Internal Revenue Code of 1986).

SEC. 4. ASSISTANCE PROGRAM TO IMPROVE ACCESS TO FEDERALLY INSURED FINANCIAL INSTITUTIONS FOR TAXPAYERS.

(a) FINDINGS AND PURPOSE-

(1) FINDINGS- Congress finds the following:

(A) Approximately 40,000,000 Americans are unbanked and not utilizing mainstream, insured financial institutions.

(B) In 1999, nearly half of the $30,000,000,000 in earned income tax credits (EITC) claimed nationwide was refunded through refund anticipation loans, and an estimated $1,750,000,000 intended to assist low-income families through the EITC was received by commercial tax preparers and affiliated national banks to pay for tax assistance, electronic filing of returns, and high-cost refund loans.

(C) Refund anticipation loans carry interest rates in a range between 97.4 percent to more than 2000 percent.

(D) An estimated 45 percent of earned income tax credit recipients pay for check cashing services, which reduces EITC benefits by $130,000,000.

(E) Individuals with bank accounts can receive their tax refunds faster than waiting for a paper check and without the need to utilize refund anticipation loans or check cashiers.

(F) Individuals with federally insured depository accounts have an increased opportunity

to access financial services at mainstream financial institutions, which typically have reduced costs for consumers.

(2) PURPOSE- It is the purpose of this section to establish a grant program to provide unbanked low- and moderate-income taxpayers with tax preparation services and increase their access to financial services by the establishment of an account at a federally insured depository institution or credit union and the provision of financial education.

(b) ESTABLISHMENT OF PROGRAM- The Secretary is authorized to award demonstration project grants (including multi-year grants) to eligible entities to provide tax preparation services and assistance along with establishing an account in a federally insured depository institution for individuals that currently do not have such an account.

(c) ELIGIBLE ENTITIES-

(1) IN GENERAL- An entity is eligible to receive a grant under this section if such an entity is--

(A) an organization described in section 501(c)(3) of the Internal Revenue Code of 1986 and exempt from tax under section 501(a) of such Code,

(B) a federally insured depository institution,

(C) an agency of a State or local government,

(D) a community development financial institution,

(E) an Indian tribal organization,

(F) an Alaska Native Corporation,

(G) a Native Hawaiian organization,

(H) a labor organization, or

(I) a partnership comprised of 1 or more of the entities described in the preceding subparagraphs.

(2) DEFINITIONS- For purposes of this section--

(A) FEDERALLY INSURED DEPOSITORY INSTITUTION- The term `federally insured depository institution' means any insured depository institution (as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813)) and any insured credit union (as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752)).

(B) COMMUNITY DEVELOPMENT FINANCIAL INSTITUTION- The term `community development financial institution' means any organization that has been certified as such pursuant to section 1805.201 of title 12, Code of Federal Regulations.

(C) ALASKA NATIVE CORPORATION- The term `Alaska Native Corporation' has the same meaning as the term `Native Corporation' under section 3(m) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)).

(D) NATIVE HAWAIIAN ORGANIZATION- The term `Native Hawaiian organization' means any organization that--

(i) serves and represents the interests of Native Hawaiians, and

(ii) has as a primary and stated purpose the provision of services to Native Hawaiians.

(E) LABOR ORGANIZATION- The term `labor organization' means an organization in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.

(d) APPLICATION- An eligible entity desiring a grant under this section shall submit an application to the Secretary in such form and containing such information as the Secretary may require.

(e) LIMITATION ON ADMINISTRATIVE COSTS- A recipient of a grant under this section may not use more than 6 percent of the total amount of such grant in any fiscal year for the administrative costs of carrying out the programs funded by such grant in such fiscal year.

(f) EVALUATION AND REPORT- For each fiscal year in which a grant is awarded under this section, the Secretary shall submit a report to Congress containing a description of the activities funded, amounts distributed, and measurable results, as appropriate and available.

(g) AUTHORIZATION OF APPROPRIATIONS- There is authorized to be appropriated to the Secretary, for the grant program described in this section, $10,000,000, or such additional amounts as deemed necessary, to remain available until expended.

(h) REGULATIONS- The Secretary is authorized to promulgate regulations to implement and administer the grant program under this section.

SEC. 5. MATCHING GRANTS TO LOW-INCOME TAXPAYER CLINICS FOR RETURN PREPARATION.

(a) IN GENERAL- Chapter 77 of the Internal Revenue Code of 1986 (relating to miscellaneous provisions) is amended by inserting after section 7526 the following new section:

`SEC. 7526A. RETURN PREPARATION CLINICS FOR LOW-INCOME TAXPAYERS.

`(a) IN GENERAL- The Secretary may, subject to the availability of appropriated funds, make grants to provide matching funds for the development, expansion, or continuation of qualified return preparation clinics.

`(b) DEFINITIONS- For purposes of this section--

`(1) QUALIFIED RETURN PREPARATION CLINIC-

`(A) IN GENERAL- The term `qualified return preparation clinic' means a clinic which--

`(i) does not charge more than a nominal fee for its services (except for reimbursement of actual costs incurred), and

`(ii) operates programs which assist low-income taxpayers in preparing and filing their Federal income tax returns, including schedules reporting sole proprietorship or farm income.

`(B) ASSISTANCE TO LOW-INCOME TAXPAYERS- A clinic is treated as assisting low-income taxpayers under subparagraph (A)(ii) if at least 90 percent of the taxpayers assisted by the clinic have incomes which do not exceed 250 percent of the poverty level, as determined in accordance with criteria established by the Director of the Office of Management and Budget.

`(2) CLINIC- The term `clinic' includes--

`(A) a clinical program at an eligible educational institution (as defined in section 529(e)(5)) which satisfies the requirements of paragraph (1) through student assistance of taxpayers in return preparation and filing, and

`(B) an organization described in section 501(c) and exempt from tax under section 501(a) which satisfies the requirements of paragraph (1).

`(c) SPECIAL RULES AND LIMITATIONS-

`(1) AGGREGATE LIMITATION- Unless otherwise provided by specific appropriation, the Secretary shall not allocate more than $10,000,000 per year (exclusive of costs of administering the program) to grants under this section.

`(2) OTHER APPLICABLE RULES- Rules similar to the rules under paragraphs (2) through (5) of section 7526(c) shall apply with respect to the awarding of grants to qualified return preparation clinics.'.

(b) CLERICAL AMENDMENT- The table of sections for chapter 77 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 7526 the following new item:

`Sec. 7526A. Return preparation clinics for low-income taxpayers.'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to grants made after the date of the enactment of this Act.

END