CCPA:LPD:PR (Notice 2009-60)
Internal Revenue Service
Post Office Box 7604
Ben Franklin Station
Washington, D.C. 20044
Dear Sir or Madam:
I am an ethical “unenrolled” tax practitioner who has been preparing 1040s, and 1040As, for compensation since February of 1972. During my tenure I have never had any “problems” with the Internal Revenue Service or a State tax authority regarding the preparation of returns.
I had previously submitted my initial comments on the topic of regulation of tax preparers in writing directly to IRS Commissioner Shulman. However since the debate began I have heard from other tax professionals on the subject and have read the testimony presented by representatives of various related membership organizations at the July 30th Public Forum, and my opinions have “evolved”.
I support the registration and licensing of all tax return preparers. I have outlined below how such a process should be handled.
1. All individuals who prepare more than 10 federal individual income tax returns (Series 1040) for compensation in any one calendar year must register with the IRS Office of Professional Responsibility and be licensed as a “Licensed Tax Practitioner” (the 10 return minimum would avoid individuals who prepare the tax returns of family members in exchange for a free meal or other non-cash “compensation” having to be licensed).
2. Only a “Licensed Tax Practitioner” would be permitted to prepare a federal individual income tax return for a fee.
3. Certified Public Accountants and Attorneys who want to be able to prepare federal individual income tax returns for a fee would be required to register and be licensed as a “Licensed Tax Practitioner”.
4. All Enrolled Agents would automatically be registered as a “Licensed Tax Practitioner” by virtue of their EA status.
5. A “Licensed Tax Practitioner” would not be permitted to “practice” before the Internal Revenue Service, other than in the limited fashion that a currently “unenrolled” preparer can represent a taxpayer-client under a Power of Attorney or Declaration of Representative with regard to the audit of a federal income tax return that he/she has personally prepared, or to discuss such return with the Internal Revenue Service under the “check-the-box” regime. Current regulations for practice before the Internal Revenue Service covered in Circular 230 would remain unchanged. Only qualified Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Enrolled Retirement Plan Agents would be permitted to “practice” before the Internal Revenue Service.
6. In order to become a “Licensed Tax Practitioner” one must submit an application, pay a registration fee, and pass an initial proficiency examination.
7. For the first year that registration and licensure is enacted, current unenrolled tax practitioners who have been preparing federal individual income tax returns consistently for five years (60 months), who have earned 50 hours of Continuing Professional Education credit in Individual Income Taxation in the two year (24 month) period prior to registration, and who are not currently prohibited from preparing federal income tax returns because of past bad acts will be exempt from taking the initial proficiency examination.
8. A practitioner who does not meet the five-year 50-hour requirement but has met the requirements for becoming a licensed tax preparer under a State administered mandatory licensing regime is exempt from taking the initial proficiency examination.
9. An individual who does not meet the five-year 50-hour requirement but has met the requirements for becoming a Licensed Public Accountant under a State administered licensing regime is not exempt from taking the initial proficiency examination. Like a Certified Public Accountant, a Licensed Public Accountant must either meet the requirements for “grandfathering” or take the test.
10. An individual who has satisfactorily passed by examination an education program in Federal Individual Income Tax Preparation offered by a qualified educational institution or membership organization (such as The Income Tax School or the National Association of Tax Professionals Basic Training Course) will be exempt from the initial proficiency examination, provided the examination by the school or organization covers the same items of federal individual income tax law as the IRS administered initial proficiency examination.
11. Upon being granted a license to professionally prepare federal individual income tax returns each LTC will be provided with a Preparer Tax Identification Number, which may be the PTIN that has previously been issued to that practitioner prior to the enactment of licensure. A “Licensed Tax Practitioner” will be required to enter his/her PTIN alongside his signature on any federal individual income tax returns prepared for compensation.
12. A “Licensed Tax Practitioner” must reapply for licensure every three (3) years by submitting an application which documents that the LTP has earned a total of seventy (70) hours of Continuing Professional Education in Individual Income Taxation and two (2) hours of Continuing Professional Education in Ethics in the preceding three (3) year period and paying a re-application fee. A minimum of sixteen (16) hours of Continuing Professional Education in Individual Income Taxation is required within each 12 month period. An LTP applying for a 3-year extension of a license must have earned these total seventy-two (72) hours in Continuing Professional Education during a 36-month period in order for his/her license to be extended.
13. A “Licensed Tax Practitioner” shall be subject to the various rules, regulations and penalties as prescribed in IRS Circular 230, and can have his/her license temporarily or permanently revoked by the Office of Professional Responsibility as therein prescribed.
14. A “Licensed Tax Practitioner” would be held to a Code of Ethics and Standards/Rules of Professional Conduct similar in nature to those of the National Association of Tax Professionals, the National Society of Accountants, and the National Association of Enrolled Agents.
15. A person applying for a license to professionally prepare individual income tax returns must be “current” on the filing and payment of all his/her “open” federal individual income tax returns. Open balances due from “closed” years shall not deter the licensure process, provided all returns have been filed. An applicant who is not “current” for all “open” years will be given the opportunity to become “current” during the application process.
16. A person applying for a license to professionally prepare individual income tax returns will not be subject to any invasive federal background check other than to verify that he/she is not currently prohibited from preparing income tax returns by the Internal Revenue Service Office of Professional Responsibility or a State licensing authority and to verify that he/she is “current” on all “open” federal individual income tax returns.
17. A person applying for a license to professionally prepare individual income tax returns shall not be required to provide the Internal Revenue Service or any other federal agency with fingerprints.
The above regime is for the licensing of 1040 preparers. There would also be a separate licensing regime for those who want to prepare 5 or more “entity” returns per year professionally – 706s, 990s, 1041s, 1065s, and 1120s – a “Licensed Tax Practitioner II” for lack of a better designation, with similar testing, and exemption from testing, and CPE requirements and similar language. For this license regime CPAs and Attorneys may be exempt from the initial proficiency test if the Treasury Department felt it appropriate.
If an individual wanted to prepare both 1040s and entity returns he/she would have to be tested separately, or qualify to be exempt from testing, for each component. However the CPE requirement would be 108 credit hours, and not 144, in a three (3) year period, with 2 in Ethics, 53 in Individual Income Taxation, and 53 in Entity Taxation, and an annual minimum of 24 CPE hours combined.
I do not believe there should be any kind of “two-tiered” system for the 1040 preparation license – a basic level with an “apprenticeship” term and an experienced level, with the basic level practitioners supervised by experienced level ones - as had been suggested by the American Bar Association at the July 30th Public Forum. I feel that commercial preparation chains such as H+R Block would exploit such a system to continue to have underpaid part-time seasonal employees with minimal education and training do most of their individual returns.
Volunteer tax preparers under the AARP and the IRS VITA program would not be required to become a “Licensed Tax Practitioner” under the 1040 preparation regime in order to continue to prepare 1040s and 1040As through these programs. Such individuals are not preparing tax returns “professionally” (although their work is for the most part truly professional), meaning for a fee. They are volunteers who prepare less complicated returns of lower income taxpayers “pro bono”.
The implementation of such a system of registration and licensure requires the acceptance and cooperation of the current community of tax practitioners, both enrolled and “unenrolled”. The IRS must present this system in a positive manner. The IRS should make it known that it does not intend to use registration and licensure to “control” all tax preparers, or to “punish” unenrolled preparers.
Registration and licensure should be presented as a means of “leveling the playing field” so that all “Licensed Tax Practitioners” would become equal in the eyes of the public. This would do away with the erroneous public misconception that only CPAs are “tax experts”. It is also a way to recognize the education, experience, and expertise of current competent “unenrolled” preparers, most of whom are already earning annual CPE credit to remain current.
The IRS must embark on a publicity campaign each tax season to educate the public on the importance of seeking out a “Licensed Tax Practitioner” to prepare their individual income tax returns. It should publicize the experience or examination and continuing education requirements of an LTP, the fact that only an LTP is permitted to prepare an individual income tax return for a fee, and that an LTP is required by law to sign the tax return. Taxpayers should be able to use the IRS website to locate “Licensed Tax Practitioners” in their area and to verify a tax preparer’s LTP status.
There would obviously be penalties charged to unlicensed tax preparers who prepare more than 10 tax returns per year for compensation. There should also be a corresponding penalty charge for the individual taxpayer whose tax return was prepared by the unlicensed tax preparer.
If a registration and licensure regime is implemented it would be effective the very earliest for 2010 individual income tax returns prepared in 2011, and the registration and testing process could begin in May of 2010.
Thank you for the opportunity to present my opinions on this important issue. Please let me know if I can be of further service in this matter.
Very truly yours,
Robert D Flach
President and CEO
Taxpro Services Corporation
I urge you to submit you comments and suggestions on this topic to the IRS. You can use the above address or submit your recommendations via email to –Notice.Comments@irscounsel.treas.gov.