Tax legislation usually reaches the news only when rates change. The quieter bills, the ones about how the IRS actually operates, tend to matter more to the people who end up across the table from the agency. On July 1, the House Ways and Means Committee approved seven tax administration bills, five of them unanimously, and the bipartisan five have a genuine path through a divided Congress. For New Mexico taxpayers, a state with chronic ghost-preparer problems, a large rural population the IRS serves badly, and its share of fraud victims, several of these deserve attention now, both for what they would fix and for what they signal about where enforcement is heading.
Which bills moved, and which have a real chance?
Two passed on party lines and face long odds: a hospital transparency measure expanding Form 990 reporting for tax-exempt hospitals, and an IRS workforce bill creating a data scientist fellowship. The other five cleared committee unanimously: a ghost preparer enforcement bill, the Tax Relief for Fraud Victims Act, a bill pausing tax deadlines for Americans held hostage abroad, an AI fraud-detection pilot, and a bill letting the National Taxpayer Advocate file amicus briefs in tax litigation. Bipartisan unanimity matters because the Senate’s tax writers, Chairman Crapo and Ranking Member Wyden, are pushing their own comprehensive tax administration package and prefer one big bill to a parade of small ones. Whether the House’s pieces pass individually or get folded into a Senate vehicle, the unanimous five represent policy both parties have already agreed on. That is as close to “watch this space” as tax procedure gets.
Why is the ghost preparer bill a New Mexico story?
A ghost preparer is someone paid to prepare returns who refuses to sign them or use a preparer tax identification number, leaving the taxpayer holding sole responsibility for whatever fictions the preparer invented: inflated withholding, fabricated credits, dependents who do not exist. When the refund unwinds, the taxpayer faces the bill, the penalties, and sometimes a fraud referral, while the preparer has vanished with a per-return fee. The problem concentrates in exactly the communities New Mexico has: rural, elderly, and immigrant taxpayers with limited access to reputable preparation. The committee’s bill would tighten the preparer penalty regime so that anonymous preparation carries real consequences, including for amended-return mills. The advice that does not wait for Congress: never use a preparer who will not sign your return. If you already have, and a notice arrived, the responsible move is a proactive review before the IRS’s math becomes an assessment, which is what our audit defense practice exists for.
What would the Tax Relief for Fraud Victims Act change?
Current law, as we walked through in detail in our post on pig butchering scams and the theft loss deduction, lets investment fraud victims deduct losses under I.R.C. § 165(c)(2) because a profit motive was present, while romance scam and impersonation scam victims, whose money left for personal reasons, get nothing after the 2017 suspension of personal theft losses. H.R. 9500 would soften that line, expanding the deduction for losses arising from fraud, deceit, or misrepresentation regardless of which button the scammer pushed. For a state with a large retiree population, that is not an abstraction; it is the difference between a devastated victim getting a five-figure tax offset or a second injury at filing time. Unanimous committee approval does not make it law, but it makes planning worthwhile: victims should document losses now as though the deduction might broaden, because substantiation built today serves any rule Congress enacts tomorrow.
Should taxpayers worry about the IRS using AI to pick audits?
The AI Tax Integrity Act would formalize a pilot program using artificial intelligence for fraud detection. Realistically, the IRS already uses algorithmic scoring, the DIF system has ranked returns for decades, and machine learning increasingly drives which partnership, ERC, and refund claims get pulled. Codifying a pilot adds oversight and reporting, which taxpayers should welcome. The practical takeaway is about posture: pattern-detection systems flag statistical outliers, and an honest return can be an outlier, a big theft loss, a casualty deduction, a one-time capital event. The defense to an algorithm’s suspicion is the same as it ever was, contemporaneous documentation and a coherent paper trail, but the speed at which notices arrive is increasing. Answering a computer-generated notice with silence is how small flags become full examinations.
| Bill | What it would do | Who in New Mexico should care |
|---|---|---|
| Ghost preparer enforcement | Real penalties for unsigned, anonymous return preparation | Anyone using a paid preparer, especially in rural and border communities |
| Tax Relief for Fraud Victims Act | Broader theft loss deduction for fraud, deceit, misrepresentation | Scam victims currently outside § 165(c)(2)’s profit-motive line |
| Hostage deadline relief | Pauses tax deadlines for Americans detained abroad | Narrow but overdue; families of detained citizens |
| AI Tax Integrity Act | IRS AI fraud-detection pilot with oversight | Every filer whose return has an unusual year |
| Taxpayer Advocate amicus authority | NTA may file amicus briefs in tax cases | Taxpayers litigating procedural rights issues |
Why does the Taxpayer Advocate amicus bill matter to litigants?
The National Taxpayer Advocate exists to be the taxpayer’s institutional voice inside the IRS, but has never had authority to speak directly to the courts deciding the procedural questions that shape collection practice: notice adequacy, deadline equity, the reach of collection due process rights. Letting the Advocate file amicus briefs puts an informed, taxpayer-side perspective in front of the Tax Court and the courts of appeals in cases where the taxpayer is often unrepresented and the government’s brief is the only expert voice in the room. For the kind of procedural fights our Tax Court practice handles, an Advocate’s brief on the taxpayer’s side of a close procedural question could move real cases.
What should New Mexico taxpayers do while Congress deliberates?
Nothing in this package is law yet, so the moves are preparatory. Keep using signing, PTIN-holding preparers, and treat any refusal to sign as a walk-away signal. If you are a fraud victim, build the documentation file now under existing § 165 rules and preserve the amended-return window. If your return this year contains an outlier item, assemble its substantiation before any notice arrives, not after. And if a notice does arrive, respond through counsel within the deadline, because every bill in this package assumes what practitioners already know: the taxpayers who get hurt worst are the ones who ignored the first letter.
Frequently Asked Questions
When would any of these bills take effect?
None are law yet. The unanimous bills await Senate action, where leadership prefers a comprehensive package, so provisions may pass individually, merge into a larger bill, or die this Congress. Effective dates would be set in whatever text finally passes.
How do I check whether my preparer is legitimate?
Ask for their PTIN, confirm they will sign the return, and look them up in the IRS’s directory of credentialed preparers. A preparer who prints the return for you to file “self-prepared,” promises a refund percentage as a fee, or asks you to sign blank forms is a ghost, and the liability being ghosted onto the return is yours.
I used a ghost preparer in a prior year. Should I wait for the IRS to contact me?
No. A voluntary amended return filed before contact is dramatically better positioned on penalties than a response to an audit notice, and it starts limitations periods running in your favor. Have the prior returns reviewed by someone who will sign what they prepare.
Would the fraud victims bill apply retroactively to losses I already suffered?
Unknown until final text exists; tax relief bills sometimes reach back a year or two and sometimes do not. That uncertainty is exactly why documenting the loss thoroughly now, under current § 165 rules, is the no-regrets move.
Does an AI-flagged notice mean the IRS thinks I committed fraud?
No. Automated flags are statistical, not accusatory, and most resolve with documentation. They become dangerous when ignored or answered carelessly, because inconsistent early responses follow the file into any later examination.
How North Star Law Firm Can Help
North Star Law Firm represents New Mexico taxpayers at every stage the bills in this package touch: cleaning up ghost-preparer damage, substantiating and defending theft loss deductions, answering computer-generated notices before they metastasize, and litigating procedural rights when the IRS gets them wrong. Phillip Zagotti, JD/CPA, represents taxpayers before the IRS and in the U.S. Tax Court under Circular 230. The firm’s tax defense practice covers audit defense, penalty abatement, and Tax Court litigation. If a preparer, a scammer, or an algorithm has put your return in the IRS’s sights, contact North Star Law Firm before the response deadline runs.