While I had expected more response from the CPA community to my Friday post, I did get one comment from CPA, and new tax blogger, Jeff Beckley - aka the Tax Man.
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"You make some very good points about the 'urban tax myth' that CPAs, and only CPAs, are tax experts. I agree that you don't have to be a CPA to be qualified to prepare a tax return.
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But, we must keep in mind that many returns are prepared by unlicensed preparers and tax software. If all preparers are required to be licensed, the cost for professional tax preparation will increase and many will turn to self-preparation through software thereby increasing the risk of error. I don't see how requiring tax preparers to be licensed serves the consumer any better.
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The AICPA's position is clearly not an attempt to monopolize the tax preparation industry. 'The AICPA believes the IRS already has the tools necessary to ensure reduced-error tax returns and proper registration methods and should resist overburdening tax preparers with redundant and potentially costly regulation requirements.'
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In reality, this proposal is an attempt by the IRS to further impose taxpayer and preparer penalties that add no value to the tax prep industry. We should stick together on this issue and petition against adding further bureaucracy and expense to our industry and the taxpayers we serve."
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First of all I agree 100% with the argument that regulation of unenrolled preparers will not, as Commissioner Shulman put it, ensure, "high ethical standards of conduct for tax preparers."
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Whether licensed or not, unethical individuals will continue to be unethical. No lofty "standards of practice" or required hours of CPE in "ethics" will automatically turn a dishonest person honest. The regulation of the CPA industry, with its Code of Professional Conduct and "enforceable" Statements on Standards on Tax Practice, did not prevent ENRON and similar fraud.
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In many cases preparers of fraudulent returns do not sign the tax return and would continue to prepare fraudulent returns even if not licensed.
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And I agree that there already exists within Circular 230 provisions for penalizing unethical behavior by tax preparers.
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I do not see how regulation of unenrolled preparers, if properly done, will materially increase the cost of tax preparation, or add substantially to the IRS budget.
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While licensure may require an initial proficiency exam, any reasonable legislation must include a grandfather clause that exempts most "experienced preparers. I have suggested that those who have been preparing tax returns consistently for at least five (5) years, and who have earned at least 60 hours of CPE credits in taxation in the past two years, would be exempt from any initial exam.
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Such "grandfathering" must be part of the legislation, as it would be literally impossible for the IRS, or any outside vendor, to properly test the more than 1 Million unenrolled preparers. And for the same reason there obviously cannot be an annual test to maintain one's license. Besides, I know of no other regulated profession that requires annual testing for renewal.
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Licensure would definitely require a minimum number of annual CPE credit hours in "taxation".
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Currently the IRS charges Enrolled Agents an initial application fee of $125.00 to take the enrollment exam. EAs must renew their "license" every three (3) years by submitting a simple form (no additional testing), on which they report their CPE credits for the period, and paying a fess of $125.00.
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I would expect licensure of unenrolled preparers would have similar nominal fees. All unenrolled preparers would probably pay a similar initial registration fee, whether or not they are exempt from the test. This could generate $125 Million plus toward the cost of administering the program.
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If I were to pass this $125.00 fee along to my clients - at about 400 returns prepared annually it would be 32 cents per return.
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Even if licensure required an annual renewal fee, with a charge of say $50.00 each year (generating $50 Million plus in annual income to the IRS), I would only have to increase my base fee by 13 cents.
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In my case I believe that I already earn at least, if not more, CPE credits each year then would be required by licensure - so I personally would not be incurring any additional annual costs for continued education. I do agree that there are many unenrolled preparers who would not normally earn the newly required annual minimum number of credit hours and would need to spend, what, about $500 more per year (on the high side). Passed along to clients this would be $2.00 to $3.00 per return.
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EAs are currently required to earn 72 CPE hours in a three (3) year period (average 24 hours per year) - with a minimum of 16 hours per year. This is certainly reasonable. And frankly, if a tax preparer is not taking at least 24 hours of CPE credit annually he/she should be. Additional continued education makes a better tax preparer and therefore provides more value to his/her clients.
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I have said that CPAs who wanted to prepare tax returns would also be required to meet the minimum CPE in taxation requirements for a "licensed tax preparer". This would not be a burden. CPAs are already subject to annual minimum CPE requirements to maintain their certification - if they want to prepare tax returns they would just have to take the credits in taxation and not general accounting.
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So you can see that licensure would at most increase the cost of the average tax return by a few bucks. Hardly enough to cause masses of clients to turn to self-preparation via tax software. Tax preparation fees as they now exist are certainly, from a strict dollar point of view only, more expensive than buying a "box", although using a paid preparer also certainly provides much more value in the long run.
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I cannot see how licensure would result in, as Jeff quoted the AICPA, "overburdening tax preparers with redundant and potentially costly regulation requirements".
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And I do not understand how he feels "this proposal is an attempt by the IRS to further impose taxpayer and preparer penalties". I expect the same preparer penalties that currently exist would remain as they are. The only additional penalties would be assessed to unlicensed preparers who continue to prepare returns.
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Regulating unenrolled preparers, if done properly (unfortunately the operative word here - and Congress does not have a good track record at doing things "properly"), would certainly not eliminate fraudulent returns or close the Tax Gap - but it "couldn't hurt".
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I still believe that it would add an extra layer of protection for the average taxpayer - and it would put all licensed tax professionals, CPAs and previously unenrolled preparers alike, on an equal footing in the eyes of the general public. Hey, CPA Jeff admits the existence of the "urban tax myth" about CPAs being the only tax experts.
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And while I have been told by another respected CPA, "I don't think the AICPA is trying to protect the CPA franchise. That gives them too much credit." - I still feel that the main reason the AICPA is against regulating unenrolled preparers is that it wants its members to keep their unfair and unwarranted advantage.
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TTFN
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