Wednesday, August 17, 2016


In her post “AICPA loses legal round in IRS tax pro regulation fight” at DON’T MESS WITH TAXES, Kay Bell, the yellow rose of taxes, says –

Robert D Flach, a professional tax preparer for 40+ years and The Wandering Tax Pro blogger, is for some regulation. Joe Kristan, a CPA and principal author of Roth & Company's Tax Update blog, is against additional regulation. (Bob and Joe, if you've changed your minds or have more recent arguments/posts about the preparer regulation effort, let me know and I'll link to them, too.)

So I thought I would update my position on the regulation of paid tax preparers.

I, like my colleague Joe Kristan, oppose the mandatory licensure of all paid tax preparers by the Internal Revenue Service, or any government agency. 

When the RTRP concept was first introduced I reluctantly supported it, provided it included a “grandfathering” exemption from the initial competency test for experienced preparers and did not exempt CPAs or attorneys who wanted to prepare 1040s for compensation, because –

ü  I assumed it was a fait accompli,

ü  I preferred to have the program created by the IRS than the idiots in Congress, and

ü  Any Tom, Dick, or Harriet, without any education, training, or experience preparing 1040s, can purchase a tax preparation software program and hang out a shingle as a “professional tax preparer”; the taxpayer public needs to be able to properly identify competent and qualified tax preparers, and the RTRP designation would help taxpayers to do so.

When Dan Alban and the Institute for Justice first challenged the program in Loving vs IRS, while I did not accept the contention that the cost of required continuing professional education would be prohibitive for many tax preparers (I believed that if serious tax preparers were not already taking at least the amount of annual CPE required under the RTRP program then they should be), I did agree that the IRS did not have the legal authority to regulate the preparation of tax returns – preparation is not practice - and supported the effort.  I was pleased when the Institute won and the victory was upheld.

I do wholeheartedly support the creation of a uniformly accepted voluntary credential/designation for those who prepare 1040s for compensation – mostly because of the “Tom, Dick, and Harriet” reason listed above.

I would prefer that the designation be administered by an independent, industry-based organization, as I discussed in “It’s Time for Independent Certification for Tax Preparers” in January of 2013 at TAXPRO TODAY.  But I would support a voluntary program administered by the Internal Revenue Service in tandem with the current Enrolled Agent Program.

Here is what I said in another 2013 TAXPRO TODAY editorial “What the IRS Should Do About the RTRP” –

The IRS should continue the RTRP designation as a voluntary program, as the court has suggested. PTIN-holders, including CPAs and attorneys, should be able elect to receive the certification/designation of Registered Tax Return Preparer by meeting the requirements, just as they have been able to choose to be certified/designated as an Enrolled Agent.

Actually, the RTRP designation should be part of a voluntary two-tiered certification program that includes the current Enrolled Agent designation.

A preparer, again including CPAs and attorneys, would first apply for and be granted the RTRP designation by way of a test that is limited to tax preparation (more involved than the original basic open-book basic test). Minimum annual CPE in federal tax topics would be required once the RTRP designation was granted. Those who had been designated an RTRP under the former regulation regime would be ‘grandfathered’ into the new voluntary program, so the time and money they spent under the former mandatory RTRP program would not have been wasted.

After a year, an RTRP could elect to take a second test, with emphasis on taxpayer representation issues and other advanced topics, to become an ETRP (Enrolled Tax Return Preparer -- a new title for the current Enrolled Agent) and be permitted to “practice” before the IRS.

The voluntary RTRP program would allow competent ‘previously unenrolled’ preparers the respect and acknowledgement that they deserve, based on their knowledge and experience, but do not currently receive. Allowing CPAs and attorneys who prepare tax returns to become an RTRP under the new voluntary program would provide these professionals with a credential in 1040 preparation, and therefore provide recognition of their competence and currency in preparing individual income tax returns. CPAs and attorneys who become RTRPs would have no need to go on to become an ETRP, as they are already permitted to ‘practice’ before the IRS.”

I believe the current IRS voluntary “Annual Filing Season Program” is impotent and provides no real benefit to tax professionals.  I posed this question to other tax pros at a Facebook tax professionals group - "have you received any new clients from participating in the AFSP?" - and all answers received were "no".

Another editorial of mine, from 2014, explained “There Are So Many Things Wrong with the Annual Filing Season Program”.  As I wrote in the editorial, let me count the ways -

1. As previously stated, the program does not provide those who meet the requirements with an identifiable credential or designation, with accompanying initials, like ‘Registered Tax Return Preparer’ (i.e., John Q. Preparer, RTRP) that the recipient can use in advertising and promotion to identify their competence and currency in 1040 preparation. Those who pass the test and take the CPE are merely placed on a list of IRS recommended preparers and given a plaque to hang in their office.

If the IRS really wants to help the taxpayer public identify competent tax preparers, who have been tested and remain current, it must provide a method of publicly identifying them – such as an actual credential.

The main purpose of a tax preparer certification program is to recognize proven educated, experienced, competent and up-to-date tax professionals via the ‘awarding’ of an actual credential – as is done with Enrolled Agents.

2. The program does not call for an initial competency test. Instead, participants must pass an annual comprehension test upon completion of the required six-hour ‘federal tax filing season refresher course’.

There should be one initial competency test. While it can be administered by individual CPE providers, as was suggested in the original proposal, it must be a universal test written by the IRS. Unlike the basic open-book test of the mandatory RTRP licensure program, the test should be more detailed and comprehensive. Participants should not be required to pass an additional test each and every year thereafter.

CPAs and attorneys who want to identify their competence and currency in 1040 preparation should be allowed to apply for the new designation and be able to display the new initials (i.e., John Q. Preparer, CPA, RTRP). In order to be awarded the new designation, and accompanying initials, CPAs and attorneys must have to meet the same competency test and annual CPE in taxation requirements as any other applicant.

3. The public database, if it will actually be used by a material number of taxpayers seeking professionals, could be large and confusing if it is merely an alphabetic listing of all ‘record of completion’ preparers mixed in with others of ‘recognized credentials’, some which nothing to do with 1040 preparation, and ‘higher levels of qualification and practice rights’.

To be done correctly, the database should contain all PTIN-holders, since all individuals who have a valid PTIN are ‘approved preparers’, listed alphabetically by category of designation. Instead of one big list, there should be separate lists for Enrolled Agents, recipients of the new voluntary designation (perhaps Registered Tax Return Preparer), unenrolled preparers, CPAs, attorneys, ERPAs, and enrolled actuaries.

The database should be prefaced with a statement that only Enrolled Agents and those holding the new voluntary designation have demonstrated competence and currency in 1040 preparation via testing and mandatory CPE in taxation.

4. Those who receive the new voluntary designation will not be allowed to “practice” before the Internal Revenue Service. Only ‘attorneys, CPAs, and Enrolled Agents will continue to have unlimited representation rights’. Loving v IRS told us that ‘preparation’ is not ‘practice’.

So those who are awarded the new voluntary tax preparer designation should not be subject to any additional ‘duties and restrictions relating to practice before the IRS’.

5. The new program should not be allowed to deny unenrolled tax preparers who chose not to participate the right to represent their clients before the service during an examination of a return that they have prepared and signed. All tax preparers with a valid PTIN must have the right to defend or explain, or assist their clients in defending or explaining, the tax returns they have personally prepared during the audit process.

I do agree that the IRS has the right to require all paid tax preparers to register and be issued a PTIN, but I oppose the continued excessive cost of initial and annual registration.

And I must point out that the IRS already “regulates” all tax preparers via the preparer penalties administered by the Office of Professional Responsibility.

So there, Kay and everyone, is my current position on the preparer regulation effort.

FYI - Joe Kristan responds to Kay in today's Tax Round-up at THE ROTH AND COMPANY TAX UPDATE BLOG.  And also see "Regulating Preparers: A Solution in Search of a Problem" from TAX ANALYSTS.

So what do you have to say about it?


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