I
had originally planned to post a series of interviews with representatives of
the four “initialed credentials” that are permitted to prepare income tax
returns under the new IRS regulation regime – JD, CPA, EA, and RTRP - based on
a discussion over at Bruce (THE MISSOURI TAXGUY) McFarland’s YouTube “McTax Hangout” a few weeks ago, on the differences between the included the
differences between the designations and the exemption from proving competence
and currency (i.e. taking the initial competency test and maintaining annual
CPE in taxation) given to attorneys and CPAs, as well as other current tax
topics.
While
not yet endowed with the RTRP initials, I planned to represent the previously
unenrolled preparer.
As
of this writing only the Enrolled Agent – Trish McIntire of the McIntire Tax Center
in Arkansas City, Kansas – has responded to my interview questionnaire. Trish writes the blog OUR TAXING TIMES. She often writes very specifically about
the tax preparation business. She
usually has something good and interesting to say, and I often find myself
saying “Right on, sister!”. A fellow lover of the American Musical Theatre,
Trish is very involved in her local theatre group.
There is constant confusion among
the taxpayer public as to just what is an Enrolled Agent is. An Enrolled Agent is not an agent, employee or representative of the Internal Revenue
Service. An EA is an independent, private tax professional who is “enrolled” to
act as a taxpayer’s “agent” in proceedings with the IRS. An Enrolled Agent is “enrolled” to “practice
before the IRS” by virtue of taking the Special Enrollment Examination and
maintaining a required amount of CPE credits in the specific area of taxation
(and, of course, 2 hours per year in ethics).
Both the competency exam and the continuing education requirements for
EAs are more extensive than those for RTRPs.
(Q) Explain the difference between an RTRP, an EA, a CPA, and a tax
attorney – and in what instances a taxpayer would need each with regards to a
1040.
(A) RTRP, EA. CPA and Attorneys are
groups that can, with a valid PTIN, prepare tax returns for compensation. There
isn’t a special IRS designation for “Tax Attorney.” The IRS gives the same
rights of representation to all attorneys in good standing with their state
boards. So my brother with his brand new law degree has the same privileges
before the IRS as an experienced tax attorney. But I wouldn’t let him handle a
tax case for me. Holders of the RTRP and EA designations are tested by the IRS
while CPAs and attorneys are tested on the state level by their state licensing
board. All have continuing education requirements which are set by the same
group that tests them. All groups have the right to represent clients before
the IRS but what the RTRP can do is limited by the IRS.
There is no real hierarchy in the
designations for a taxpayer when it comes to tax preparation. The ability and
interest to do a type of return depends on the preparer and their
practice. A RTRP might be a wiz at farms
(not on the RTRP test) while a CPA doesn’t handle returns with EIC. In
representation, the RTRP is restricted so any of the remaining tax pros might
be a better choice. Again, other factors need to be considered in choosing a
representative.
(Q) Currently CPAs, and attorneys are exempt from proving competence and
currency in 1040 preparation under the IRS tax preparer regulation regime. Regardless of your opinion on whether or not
the regulation regime is a good idea – explain either why the exemption for
CPAs and attorneys is appropriate (and how passing the CPA or bar exam
qualifies one for preparing 1040s) or why CPAs and EAs should not be
exempt.
(A) The test for a RTRP designation
is a minimum tax competency test. The same material is tested in the EA exam.
The question is do any of the state tests for a CPA or attorney license cover
all that material in the same depth? From what I’ve heard, it doesn’t. The
other issue is that tax related continuing education is not required for
attorneys and CPA. They can take tax courses but they are not required to take
them. We end up with 2 standards and the
groups that the public would assume to be better able to handle tax issues are
the groups who have less testing and no continuing tax education requirements.
(Q) The talk of tax reform (even though only talk at this point) has turned
to eliminating “tax expenditures”. What
current tax deductions and credits would you keep in a new simpler Tax Code,
and what deductions and credits simply have to go?
(A) I would get rid of all those
deductions for personal expenses that most people can’t use or make them direct
deductions. Employee business expenses, personal casualty and theft losses and
mortgage interest come to mind. Get rid of Schedule R. Put in inflation
adjustments in taxable Social Security. Something needs to be done with
charitable deductions but I don’t know what.
(Q) Is the Tax Code the proper place for providing “social benefits”, such
as tuition subsidy (the education tax benefits), supplemental welfare (the
Earned Income Credit and refundable Child Tax Credit), and to encourage energy
efficient purchases (the Energy Credit)?
(A) My concern with a blanket
removal of “social benefits” is the Earned Income Credit. If Congress wants to
pass an incentive for energy, the Dept of Energy should administer it. HUD
should take care of housing incentives, you get my point. I understand the idea for doing it on taxes –
it’s quicker, but that’s why we’ve had so much fraud lately. If Congress
insists on using the IRS for processing, keep it separate from the 1040. Kansas
has a property tax rebate that is handled by the KDOR but it has its own return
and processing timetable. That way the claim can be double checked and not hold
up the KS-40 refund.
That might be the answer for the
Earned Income Credit. I have a real problem getting rid of this program. There
is a lot of fraud but there are a lot of hard working people who need that
money. It’s their cushion against medical bills and emergencies (car repairs to
keep working). Yes there are a few who don’t take better work to keep their
refund maxed out. But so many more would be happy to lose the EIC if their
income would go up. Administering it through a Federal department might be an
option as long as it stays reasonably accessible to everyone who qualifies.
(Q) Do you think you will see a true simple Tax Code in your lifetime, with
truly minimal deductions, no credits, and either a flat tax or only 2 tax
brackets?
(A) No! We don’t have the people who
can do that. Have you read the book “Showdown at Gucci Gulch”? It’s behind the
scenes of the 1986 tax reform. We don’t have the people who are passionate
about the changes or the leadership who are willing to make it work. On top of
that, lobbyists are much more influential today than in 1986 and would make
cutting their credit or deduction impossible.
(Q) I have suggested doing away with the tax deduction for depreciation of
real property (see my post http://wanderingtaxpro.blogspot.com/2007/11/here-is-something-to-think-about.html).
What do you think of this idea?
(A) I would have a hard time
explaining to a client that they can’t take any part of the new business building
off their taxes. They can depreciate the
new tools but not the building. Also, the depreciation might be more necessary
to the business early in the life of the building than the tax on recaptured
depreciation later. And don’t forget, there is a good chance that there won’t
be any recapture later because of death and the stepped up basis. I don’t see
this one happening at all.
(Q) Now that the tax season is finally over, how will you be spending your
summer vacation?
(A) Still doing returns - an appointment
coming in this afternoon. I’m also getting ready to direct a show and
co-writing a director’s handbook for the theatre. I’m updating the theatre’s
website for the new season and redoing my office site. And catching up on
paperwork and filing.
Thanks, Trish!
TTFN
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