The IRS Just Got a Recommendation to Regulate Every Tax Preparer in America

The IRS Just Got a Recommendation to Regulate Every Tax Preparer in America

On June 18, 2026, the Electronic Tax Administration Advisory Committee released its annual report to Congress and the IRS Commissioner. Buried in the 18 recommendations: Congress should give the IRS authority to regulate all paid tax preparers — not just CPAs and enrolled agents.

If you're a credentialed tax practitioner, you've wanted this for years.

If you're not, you should understand what this recommendation means and how fast it can move.

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The Credentialing Gap ETAAC Just Addressed

Right now, anyone in the United States can prepare a tax return for compensation, regardless of education, training, or ethical standards. No license required. No exam. No continuing education. No mandatory disclosure to clients that the preparer lacks credentials.

This is the "ghost preparer" problem — a broad category that includes both fraudulent preparers who sign returns without disclosing themselves and competent but uncredentialed preparers who simply don't hold a CPA license or enrolled agent designation.

The IRS has tried to fix this before. In 2010-2013, the IRS created a voluntary registration system (the Registered Tax Return Preparer program) that required testing and CPE for non-credentialed preparers. A federal court struck it down in 2013 (Loving v. IRS), ruling the IRS lacked statutory authority to impose requirements on preparers who weren't already licensed.

Since then, fixing this requires Congress to act. ETAAC's 2026 recommendation is the clearest formal advisory weight Congress has received to do exactly that.

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What ETAAC Recommended

The Electronic Tax Administration Advisory Committee published its 2026 annual report — 18 total recommendations, six directed to Congress. The preparer regulation recommendation calls for Congress to grant the IRS statutory authority to:

• Require registration of all paid tax preparers (not just CPAs/EAs)
• Set minimum competency standards — testing, education requirements
• Enable enforcement against non-compliant preparers

The report also recommends real-time EFIN/PTIN validation — tightening the credential verification system that currently has enforcement gaps for non-credentialed preparers.

ETAAC is an advisory body. Its recommendations don't create law. But ETAAC recommendations carry formal administrative weight, and they've been cited in legislation. The 2026 report gives Congress a specific, recent advisory committee recommendation to point to when introducing new legislation.

Legislation requiring IRS preparer regulation has been introduced in every recent Congress — most recently the TAS Act in early 2026 and the Taxpayer Protection and Preparer Proficiency Act. None has passed. ETAAC's formal recommendation doesn't guarantee movement, but it adds advocacy weight to a known legislative priority.

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Why This Matters for Credentialed Firms

If Congress acts — and "if" is doing real work in that sentence — the competitive landscape for tax preparation changes in two ways.

Narrowing, not elimination. Regulation wouldn't eliminate competition from non-credentialed preparers. It would require them to meet minimum standards. The credential still matters, but the gap between "credentialed CPA" and "registered non-credentialed preparer" narrows. The more significant effect is the filtering out of truly unqualified preparers who currently compete on price with no accountability.

A switching moment. Clients who currently use non-credentialed preparers will face a regulatory change. Even if the new standards don't require them to switch, the regulatory attention creates a natural moment to re-evaluate. Clients who get a letter from the IRS about new preparer registration requirements, or who see coverage about the change, will have a question: "Should I be using someone who's actually licensed?"

That question is your marketing moment.

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The AI Documentation Signal

ETAAC's 2026 report also addresses AI — and this part matters regardless of what Congress does about preparer regulation.

The IRS now has 129 documented AI use cases, up from 54 a year ago. AI is being used in fraud detection, identity verification, and audit selection. ETAAC recommends the IRS expand this further and establish a public AI disclosure framework explaining how AI is used in administration.

What this means for tax practitioners: AI audit selection systems work differently from human review. They pattern-match across documentation characteristics, not just financial anomalies. Returns that are complete, consistent, and well-documented score differently than returns with gaps, inconsistencies, or missing substantiation.

This isn't new. But the scale is changing. More AI use cases means more automated screening before human review is triggered. The quality standard for documentation isn't just an ethics question anymore — it's an audit risk question. AI-prepared or AI-assisted returns need the same documentation rigor as manually prepared ones, and the IRS AI framework will eventually require disclosure about AI use in preparation.

ETAAC's disclosure framework recommendation is a preview. Build your AI governance documentation now, before it's required.

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The Concurrent Pressure: IRS Workforce Cuts

ETAAC's recommendation for more AI and expanded preparer regulation comes in the same period as a 26% IRS workforce reduction — from approximately 102,000 employees to around 75,000, with 40% of IT staff reduced.

These two facts are in tension: ETAAC recommends expanding IRS enforcement capacity and AI capability at the same moment enforcement capacity is contracting. ETAAC explicitly addresses this in its recommendation for sustained funding — emphasizing that technology modernization requires predictable investment.

For tax practitioners: the practical near-term reality is an IRS with more automated tools but less human enforcement capacity. That combination typically means AI-driven screening at the front end (catches patterns and anomalies) with reduced capacity for complex human review at the back end. Documentation quality matters more, not less, in this environment.

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What to Watch

The ETAAC preparer regulation recommendation will generate legislation. The timeline is uncertain — preparer regulation bills have been introduced and failed for more than a decade. But the 2026 legislative environment includes a new Congress and the formal ETAAC recommendation on record.

Three monitoring items for credentialed tax firms:

Track legislation by name. Watch for the Taxpayer Protection and Preparer Proficiency Act and any new bills citing the ETAAC 2026 report. When they're introduced, the Senate Finance Committee hearing schedule tells you how seriously the committee is treating it.

Prepare client communication templates. If regulation advances, clients using non-credentialed preparers will receive IRS communications about new requirements. Having a prepared response ready — explaining the difference between registered non-credentialed preparers and CPAs/EAs — positions you for the switching moment. Draft this now while the argument is clear.

Update your AI governance documentation. The ETAAC AI disclosure framework is advisory now. It will be required eventually. Having a clear firm policy on how AI is used in return preparation, what verification steps are applied, and how client data is protected is both a compliance investment and a differentiator when clients ask.

The regulation being recommended won't pass overnight. But it's moving — and for credentialed CPA and EA firms, the direction of movement is in your favor.