The "Taxpayer Protection and Preparer Proficiency Act" aims to enhance taxpayer protection and improve the professionalism of tax return preparers. It achieves this by significantly increasing penalties for various forms of preparer misconduct and establishing a robust regulatory framework for tax preparer identification numbers. The bill also broadens the definition of documents considered "returns" for penalty purposes.

The Act significantly raises monetary penalties for tax return preparers who fail to furnish a valid identifying number, increasing the penalty to $250 per failure, with an annual maximum of $75,000. It explicitly defines what constitutes an invalid identifying number, such as one assigned to another person, non-existent, or revoked. A new penalty of $250 is also introduced for electronic return originators who fail to use their assigned electronic filing identification number.

To deter serious misconduct, the bill creates a new felony offense for willful misuse or misappropriation of a preparer tax identification number (PTIN). This includes willfully furnishing an invalid or appropriated PTIN, carrying potential fines up to $50,000 (or $100,000 for corporations) and up to two years imprisonment. The Secretary of the Treasury is also directed to establish a program allowing preparers to correct inadvertent errors related to identifying numbers before penalties are imposed.

The bill substantially increases existing penalties for various preparer failures, such as not providing a copy of the return to the taxpayer or failing to sign the return, raising them to $250 per failure. The penalty for failing to be diligent in determining eligibility for the earned income credit is doubled to $1,000. Crucially, the Act expands penalties for refund misappropriation to include electronic funds transfers, imposing a penalty equal to the greater of $1,000 or the full amount of the misappropriated refund.

A central provision establishes a comprehensive program for administering preparer tax identification numbers (PTINs), requiring individuals to meet suitability and education requirements for issuance or renewal. Suitability involves background checks and compliance with personal tax obligations, while education mandates specific hours in ethics, professional responsibility, and tax law. An exemption exists for individuals holding valid state licenses or registrations with comparable requirements.

The Secretary is granted explicit authority to deny, suspend, or revoke PTINs for reasons including failure to meet suitability or education standards, demonstrated incompetence, or disreputable conduct. Monetary penalties of $1,000 (or $5,000 for misleading taxpayers) can be imposed in addition to or in lieu of suspension or revocation. Preparers are afforded due process, including notice, opportunity for a hearing, and the right to appeal determinations.

The bill mandates the public disclosure of final determinations regarding extended PTIN suspensions, revocations, and reissuances on the IRS website, with appropriate redactions to protect taxpayer privacy. It also requires the IRS Commissioner to annually publish the 10 most frequent errors on preparer-prepared returns and the top 10 reasons for preparer penalties or disciplinary actions.