Monday, July 26, 2010


I’m back!

First let me apologize for my pre-scheduling of posts FU. It seems that the first truly was last. The last entry was posted first (Monday, July 19) and the first entry in the series was posted last (Friday, July 23rd)! I did not have access to the internet on my trip – so I did not spot the FU until Saturday morning. My bad!

Now – on with the National Association of Tax Professionals annual conference in Austin, Texas. As I mentioned yesterday, this was the 18th annual conference I have attended in my 23 years as a member of NATP. The last conference I attended was 2006 in Boston.

The draw, and highlight, of this conference was the double-bill of top-level IRS speakers – Karen Hawkins, the new Director of the Office of Professional Responsibility and keeper of Circular 230, who gave the keynote address at the opening session on Monday morning, and David Williams, Director of IRS Electronic Tax Administration and Refundable Credits and the IRS person who is creating and overseeing the new tax return preparer registration regime, who spoke on the new regime and the e-file mandate in a general session on Tuesday afternoon.

In discussing return preparer registration Karen, an attorney, affirmed the fact that the CPA exam and the bar exam are not tests of 1040 preparation knowledge – and stated her belief that “lawyers and CPAs should be tested”. However, she gave as the excuse for why this is not being done some federal regulation that forbids the government or the Treasury Department (I forget which) from issuing regulations that affect the ability of CPAs or attorneys to “practice”.

While I am not familiar with the specific regulation, this appears to me to be a poor excuse. Requiring CPAs and attorneys to be tested and take specific annual CPE does not affect their ability to certify the audits of financial statements or represent clients before the various bars. There is nothing in the new regime that changes the ability of EAs, CPAs or attorneys to “practice” before the Internal Revenue Service – i.e. represent clients in collection and Tax Court matters. Formerly unenrolled preparers who must now register will not be able to represent clients before the IRS in these matters.

The new regulation regime simply wants to assure that all individuals who wish to prepare federal income tax returns for a fee verify their competence via an initial test and remain current by taking required CPE credits in federal taxation topics. CPAs and attorneys who wish to prepare federal income tax returns for a fee should be subject to the same requirements as the previously unenrolled. Only Enrolled Agents have already proven competency and currency and should be exempt.

Both were excellent speakers. David was exceptional – and one wondered what he is doing working for the IRS. David did not address in detail the reasons CPAs and attorneys are exempt from proving competency and remaining current, and he was not asked any questions on this topic during the brief Q+A following his presentation.

The following items of interest regarding the new regulations were mentioned in the presentations –

* A tax preparer’s PTIN must be renewed, and a fee paid, every year – and not every three years as originally proposed by the IRS. There was some bureaucratic reason for this. The actual fee, which it had been determined by the IRS, could not be announced at the time of the presentations because there was still some government individual or group that had to provide its “blessing” on the amount before it could be made public. We have since learned from IR-2010-86, issued July 22, 2010, that the IRS will charge “a fee of $50, payable to the IRS, to cover technology costs, as well as compliance and outreach efforts associated with the new PTIN program. The proposed regulations would also provide for an additional fee (expected to be substantially lower than $50) to be charged by the third-party vendor chosen to operate the new online system.”

* Since all those who register for or renew a PTIN, including EAs, CPAs and attorneys, will be required to pay this fee, the enrollment/renewal fee for Enrolled Agents is expected to be reduced.

* Once the regulation regime is fully phased-in the IRS will consider charging taxpayers who pay individuals without a valid PTIN to prepare their federal income tax return a penalty. This would not happen for at least 3 years.

* The IRS may consider sending taxpayers who file computer-generated “self-prepared” returns a letter asking them to verify, under penalty of perjury, that the return was indeed “self-prepared” and not done by an unregistered paid preparer who did not sign the return.

* Registered tax preparers who will be taking the competency test will be fingerprinted as part of the “background check” that will be required. Because Electronic Return Originators (EROs) apparently have already provided fingerprints and undergone a background check they may be exempt from this requirement.

* Individuals who prepare only federal payroll tax returns, and are not involved in the preparation of federal income tax returns, may be exempt from the 1040 competency exam, although they will have to register and obtain a PTIN. As an update - according to the recent NATP TAXPRO WEEKLY e-letter – “Initially, the IRS indicated that paid preparers who prepare only payroll returns would be required to take the 1040 nonwage business competency exam. The FAQs have been revised to state that at this time, testing will only apply to those preparers who prepare at least one 1040 series return.”

* The annual requirement for 15 hours of CPE in specific tax topics (which includes the ridiculous 2-hr ethics waste of time) will be effective for all applicable registrants for the one year period beginning January 1, 2011, and not the date of registration if earlier. The TAXPRO WEEKLY also brings an update on this item – “The effective date for the continuing education requirement has yet to be officially determined but IRS sources say it could be another year before the requirement becomes effective”.

* David mentioned that the current priority is getting in place the procedures for initial registration by September of this year. Once this is done work will begin on the procedures for the competency testing and other related issues.

* With the newly created need for continuing education in taxation this is a business that we should seriously consider getting involved in. Continuing education providers will need to be “approved” by the Internal Revenue Service.

* The IRS will very likely offer an “opt out” choice for taxpayers who do not want their tax preparer to submit their 1040, or 1040A, electronically, therefore relieving the preparer of the e-filing requirement. And the Service may consider offering special “waivers” from the requirement for tax preparers with situations like mine. That is good news indeed!

Here are some items of interest that I either learned or was reminded of in the various classes I attended –

* The fact that IRAs were made available to all taxpayers, regardless of level of income or employer plan coverage, was what saved the economy from double-digit interest rates back in the early 1980s.

* One should not rollover a 401(k) or other employer plan to an IRA after converting a traditional IRA to a ROTH in the same year. If you convert in 2010 wait until 2011 to do the rollover. This is because the total amount in all IRA accounts at December 31st is used in the calculation to determine the taxable amount of the conversion (I attended the same class – although a different session – on ROTH conversions as Kay Bell – which she discussed in her post “Are You Ready for a ROTH?”).

* There are 1000 types of IRS notices – and over 200 Million notices are sent out by the IRS each year.

* Nothing is ever “off the record” at an IRS office audit.

to be continued . . . .


1 comment:

Mary O'Keeffe said...

Glad to hear you found David to be "excellent." I think so too! Of course, I am biased--he was a former student and teaching assistant of mine!

See my latest post for links to some honors he has earned for his work.