TAXPRO COMMENTARY: REGULATING TAX PREPARERS – Part Two

 
Last week I suggested the creation of an independent “National Institute of Certified Tax Return Preparers” to administer a voluntary Form 1040 (and 1040-SR) tax preparation credential.  Click here to read that post.  Here is another option for a voluntary credential program, this one administered by the Internal Revenue Service
 
The IRS should make a voluntary Registered Tax Return Preparer or Certified Tax Return Preparer designation part of a two-tiered certification program that includes the current Enrolled Agent designation.
 
A preparer, including CPAs and attorneys, would first apply for and be granted the RTRP or CTRP designation by way of a test that is limited to Form 1040 tax preparation.  Minimum annual CPE in federal tax topics would be required once the designation was granted, similar to what I suggested for the Certified Tax Return Preparer option last week or in line with the current requirements for Enrolled Agents.  Grandfathering would be allowed similar to what I had identified in last week’s post.  
 
After a year, an RTRP or CTRP 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 designation 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 or CTRP 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 or CTRPs would have no need to go on to become an ETRP, as they are already permitted to “practice” before the IRS.
 
The IRS currently administers a voluntary program known as the Annual Filing Season Program (AFTS).  This program does not issue to those who meet its requirements an actual identifiable credential or designation.  Instead, those who qualify will be issued a “record of completion” and be added to an IRS public database of what was initially identified as “approved preparers.
 
But there are so many things wrong with the Annual Filing Season Program. 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 via 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, it should be a universal test written by the IRS.  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 RTRP or CTRP designation, 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. 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.
 
While I would support a two-tiered voluntary IRS-administered credentialing program, my preference is the independent program I outlined last week.
 
Your thoughts?
 
BTW – I have created a GUIDE TO FINDING A TAX PROFESSIONAL.  Click here for more information.
 
TTFN

TAXPRO COMMENTARY: REGULATING TAX PREPARERS – Part One

 
The regulation of paid tax preparers by the Internal Revenue Service is being discussed, and proposed, again.  But do we really need the IRS to require federal “licensing” of paid tax return preparers?
 
The service already regulates preparers, both those permitted to “practice” before the IRS, like CPAs, attorneys and Enrolled Agents, and unenrolled preparers via Circular 230. There have been “preparer penalties” for quite a while now.
 
In the late 1990s, the IRS created the Preparer Tax Identification Number, or PTIN, as an alternative to the Social Security number to help prevent identity theft.  Currently all paid preparers are required to register with the IRS and receive a PTIN, so the service has the central registry of paid tax preparers.
 
There is no real need to require a federal “licensing” of paid tax return preparers. But there is a problem that needs to be addressed.  The problem is that any Tom, Dick or Harriet can hang out a shingle as a “tax preparer,” regardless of education or ability. The situation got worse with the introduction of tax preparation software. Any Tom, Dick or Harriet, with absolutely no training, experience or knowledge, can simply purchase a tax preparation software package and try to pass themselves off as a “tax professional.”
 
Without some kind of accepted certification program, the taxpaying public has no way of knowing if a person who says that they are a professional tax preparer has any training or experience in, or actual knowledge of, preparing tax returns (except for individuals who have the initials EA, for Enrolled Agent, after their name).
 
One answer would be some kind of voluntary “certification program” where a tax preparer could receive a universally accepted professional designation - "Certified Tax Return Preparer" (CTRP) - based on testing or credentials and maintained by required annual continuing professional education in federal taxation. The taxpaying public would then know that a preparer possessing this designation has proven basic competence in preparing 1040s and remains current in tax law.
 
The IRS is not the best choice to administer such a voluntary certification program. In the case of all other professions, like CPAs, attorneys, architects and medical doctors, the maintenance of the professional certification designation is done by an independent industry-based organization such as the American Institute of CPAs, the American Bar Association, the American Institute of Architects, and the American Medical Association.

I propose creating a National Institute of Certified Tax Return Preparers.
 
There have been many attempts at voluntary certification of tax return preparers -- creating a designation for tax preparers (Certified Tax Professional, Chartered Tax Preparer, etc.) -- over the years.  The Accreditation Council for Accountancy and Taxation, established in 1973 by the National Society of Accountants (the other NSA), currently offers two credentials in taxation – the Accredited Tax Preparer (ATP) and Accredited Tax Advisor (ATA).  But none of the attempts have been successful because they were offered by individual membership or CPE organizations and were not universally accepted by the industry.  Creating a National Institute of CTRPs, with representatives of all industry “players,” to issue and maintain the designation should correct this.
 
The institute would be an independent, nonprofit organization established solely for the purpose of issuing, maintaining and promoting the CTRP designation. Its governing board will consist of a representative (perhaps the executive director or board president) of the National Association of Tax Professionals, the National Society of Tax Professionals, the National Society of Accountants, and any other appropriate tax-related membership organization, and at least two independent “previously unenrolled” practicing tax professionals.
 
In order to be designated as a CTRP, a candidate must possess a valid PTIN and pass a competency test on federal 1040 tax law. A “grandfathering exemption” from this test would be allowed for:
 
• Tax professionals who have been consistently preparing federal income tax returns on at least a half-time basis for at least five full years and who have successfully completed a total of 48 hours of continuing professional education in federal taxation in the three-year period (36 months) prior to applying for the designation.
 
• Tax professionals who have been licensed or certified to prepare income tax returns under a required state registration or licensing program that includes a competency test.
 
• Individuals who have successfully completed a certificate or certification program in federal income taxation offered by an accredited educational institution or a qualified membership organization that includes testing.
 
CTRPs would need to renew their designation every three years by submitting proof of completion of a total of 48 hours of CPE in federal taxation during the three-year period, with at least eight hours in one year. The 48 hours must include 4 hours of “tax updates” per year (a total of 12 hours) and one hour of “ethics updates” within the three-year period.
 
Qualified CPE providers would include accredited educational institutions and organizations/companies accepted by the National Registry of CPE Sponsors. The NICTRP would not need to separately approve CPE providers.
 
CPAs and attorneys would be welcome to apply for voluntary certification under the National Institute of CTRPs as a way to acknowledge and identify their knowledge of and currency in 1040 preparation.
 
With the institution of such a voluntary certification program, taxpayers will be able to identify true “tax professionals” from among the choices they are faced with. More accurate and competent returns will be prepared. And competent, ethical previously unenrolled tax preparers will receive the recognition and respect that they deserve. Everyone benefits -- the taxpaying public, the IRS and the tax preparation industry.
 
FYI – several years ago I wrote to several tax preparer membership organizations about this proposal, but none were interested.
 
Your thoughts?
 
Next week I discuss another option for a voluntary tax preparation credential that does involve the IRS.
 
BTW – I have created a GUIDE TO FINDING A TAX PROFESSIONAL.  Click here for more information.
 
TTFN

WHAT THE TAX PREPARATION INDUSTRY REALLY NEEDS

Once again, the issue of tax preparer regulation is in the news.  There has recently been talk of giving the IRS the authority to regulate all preparers via proposed economic and budget legislation and of a revival of the Registered Tax Return Preparer (RTRP) program that was done away with by the US Tax Court in January of 2013.

The Internal Revenue Service already regulates preparers, those permitted to “practice” before the IRS, like CPAs, attorneys and Enrolled Agents, and “unenrolled” preparers, via Circular 230.  

I do not oppose requiring PTIN-holders to complete a minimum number of CPE hours in federal income taxation to maintain their PTIN.  In fact, I support this.  It is vital that every sincere and competent paid Form 1040 tax preparer take CPE in income taxation each year to keep up-to-date on tax law changes.  I have taken on average at least 16 hours of CPE in federal income taxation each year consistently for decades. 

I do oppose requiring all paid tax preparers to take a government-administered competency test, either one time or annually, to maintain their PTIN and continue to be allowed to prepare tax returns.  I would only support a one-time initial competency test if there was a grandfathering exemption for tax preparers who have been consistently preparing 1040s for at least 5 years.  After 50 tax seasons of preparing 1040s without incident I have no intention of taking a test now to prove I know what I have been doing for all these years..

I do support voluntary Form 1040 competency designations that recognize and identify the competence of unenrolled 1040 preparers.  Such a program would benefit the tax preparation industry, the taxpayer public, and the federal government. 

Currently any Tom, Dick or Harriet can hang out a shingle as a “tax preparer,” regardless of education or ability.  And, thanks to tax preparation software, any Tom, Dick or Harriet, with absolutely no training, experience or knowledge, can simply purchase a tax preparation software package and try to pass themselves off as a “tax professional”.  The taxpayer public does need a way to determine the relative competence of a potential tax preparer.

I would support the Internal Revenue Service establishing an RTRP designation as part of a voluntary two-tiered certification program that includes the current Enrolled Agent designation.

A voluntary Form 1040 competency designation would allow qualified “unenrolled” preparers the acknowledgement they deserve based on their knowledge and experience. 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.  The CPA designation alone does not indicate the holder has any competence or currency in 1040 preparation.

A preparer, including CPAs and attorneys, would first apply for and be granted the RTRP designation by way of a test that is limited to Form 1040 preparation.  Minimum annual CPE in federal tax topics would be required once the RTRP designation was granted.  

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 (EA), and be permitted to “practice” before the IRS.  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.

What I strongly believe should be done is to create a national board consisting of representatives of all current tax return industry membership organizations to issue and maintain a universally accepted independent voluntary professional designation – CTRP for Certified Tax Return Preparer - based on testing and maintained by required annual continuing professional education in federal taxation.

In the case of all other professions, like CPAs, attorneys, architects and medical doctors, the maintenance of the professional certification designation is done by an independent industry-based organization such as the American Institute of CPAs, the American Bar Association, the American Institute of Architects, and the American Medical Association.  The new 1040 credential would be administered by the National Institute of Certified Tax Return Preparers.

The Institute would be an independent, nonprofit organization established solely for the purpose of issuing, maintaining and promoting the CTRP designation. Its governing board would consist of a representative (perhaps the executive director or board president) of the National Association of Tax Professionals, the National Society of Tax Professionals, the National Society of Accountants, the AICPA, the American Bar Association, and any other appropriate tax-related membership organization, and at least two independent “previously unenrolled” practicing tax professionals.

In order to be designated as a CTRP, a candidate must possess a valid PTIN and pass a competency test on federal 1040 tax law. A “grandfathering exemption” from this test would be allowed for:

• Tax professionals who have been consistently preparing federal income tax returns on at least a half-time basis (during the traditional tax filing season) for at least five full years and who have successfully completed a total of 48 hours of continuing professional education in federal taxation in the three-year period (36 months) prior to applying for the designation.

• Tax professionals who have been licensed or certified to prepare income tax returns under a required state program that includes a competency test.

• Individuals who have successfully completed a certificate or certification program in federal income taxation offered by an accredited educational institution or a qualified membership organization that includes testing, like the tax programs of Accreditation Council for Accountancy and Taxation (ACAT).

CTRPs would need to renew their designation every three years by submitting proof of completion of a total of 48 hours of CPE in federal taxation during the three-year period, with at least eight hours each year. The 48 hours must include three hours of “tax updates” per year (a total of nine hours) and one hour of “ethics updates” during the three-year period.

Qualified CPE providers would include accredited educational institutions and organizations/companies accepted by the National Registry of CPE Sponsors. The NICTRP would not need to separately approve CPE providers.

CPAs and attorneys would be welcome to apply for voluntary certification under the National Institute of CTRPs as a way to acknowledge and identify their knowledge of and currency in 1040 preparation.

With the institution of such a voluntary certification program taxpayers will be able to identify true “tax professionals” from among the choices they are faced with.  More accurate and competent returns will be prepared. And competent, experienced and ethical “previously unenrolled” tax preparers will finally receive the recognition and respect that they deserve. Everyone benefits.  

So, fellow tax pros, what do you think? 

 TTFN

SMALL VICTORY FOR THE AICPA

Russ Fox reports “AICPA Has Standing Per DC Court of Appeals; IRS’s Annual Filing Season Program In Jeopardy” at TAXABLE TALK.

Russ explains –

“The American Institute for Certified Public Accountants (AICPA) filed a lawsuit in July 2014 challenging the IRS’s Annual Filing Season Program (AFSP). Almost exactly one year ago, a District Court for the District of Columbia ruled that the AICPA did not have standing to sue. The AICPA appealed that ruling, and in a decision announced today the Court of Appeals for the District of Columbia ruled that the lower court was wrong: The AICPA did have standing and the lawsuit will move forward.”

Russ provides some quotes from the new ruling -

“The Institute alleges—and we must accept as true for purposes of assessing its standing—that participating unenrolled preparers will gain a credential and a listing in the government directory. The Institute alleges—and we must accept as true for purposes of assessing its standing—that this will ‘dilute the value of a CPA’s credential in the market for tax-return-preparer services’ and permit unenrolled preparers to more effectively compete with and take business away from presumably higher-priced CPAs.”

“As the Institute helpfully sums up, ‘because the Rule distorts the competitive marketplace and dilutes [Institute] members’ credentials by introducing a government-backed credential and government-sponsored public listing, it harms those members regardless of whether it also confuses consumers.’”

“Nor do we see anything speculative or attenuated about the allegation that CPAs and their firms are more likely to lose business to an unenrolled preparer with a Record of Completion and a listing in the government directory than to an unenrolled preparer with no credentials at all.”

The bottom line – the AICPA fears that any government, or other, credential or designation that identifies a person’s competence and currency in 1040 preparation will take business away from CPAs.  Duh!  Of course it will – and it should!  The current erroneously presumed credentials of CPAs in the market for tax-return-preparer services should be diluted, as they are unrealistic.  Qualified unenrolled preparers should be able to more effectively compete with the urban tax myth that CPAs are automatically 1040 experts.  This does not “distort the competitive marketplace”, but instead improves the marketplace by providing taxpayers looking for a qualified tax preparer more information to help them make an informed decision.

The AICPA firmly believes, and has so told members in correspondence, that CPA’s “own” the tax preparation brand.  However it is a fact that the designation CPA, for Certified Public Accountant, is not a tax designation or credential.  It verifies the knowledge, competence, and currency in the practice of accounting of the holder, not the knowledge, competence, or currency in the preparation of individual tax returns.  Merely being able to display the initials CPA after one’s name in no way, shape or form indicates that the person with the initials knows his or her arse from a hole in the ground when it comes to preparing 1040s.

What is a Certified Public Accountant?

According to Wikepedia – “Certified Public Accountant (CPA) is the statutory title of qualified accountants in the United States who have passed the Uniform Certified Public Accountant Examination and have met additional state education and experience requirements for certification as a CPA”.

Merrian Webster defines a CPA as “an accountant who has met the requirements of a state law and has been granted a certificate”. And the free online dictionary says a CPA is “public accountant who has been certified by a state examining board as having met the state's legal requirements”.

The Investor Glossary gets more to the point – “A Certified Public Accountant (CPA) is a person licensed by a state board of accountancy to practice public accounting. The primary distinction between a Certified Public Accountant and all other accountants is that only a Certified Public Accountant can issue an opinion on audited financial statements.”

In order to become a CPA one must pass a difficult and lengthy exam, with minimal, if any, questions on 1040 tax preparation. There are also certain education and “apprenticeship” requirements, and a CPA must earn a minimum amount of CPE credits each year to maintain his/her initials, although there is no specific requirement that any of these CPE credits be in the area of taxation. The individual education, apprenticeship and CPE requirements may vary from state to state.

I am not a fan of the IRS voluntary AFSP “credential” (it does not provide any specific designation, but merely issues a “Record of Completion” for taking specific required CPE in taxation).  It has certainly not been greeted with an overwhelming response from “currently unenrolled” preparers.  For my thoughts on the program see my ACCOUNTING TODAY editorial “There Are So Many Things Wrong with the Annual Filing Season Program”.   But I see the need for a universally accepted 1040-preparation credential, with appropriate initials, administered not by the Internal Revenue Service but an independent industry-based organization, that would verify, recognize, and acknowledge the knowledge, competence, and currency of many “currently unenrolled” tax professionals.

If the AFSP continues I, personally, am not concerned about the loss of “representation rights”.  I will still be able to discuss the processing and contents of a 1040 I have prepared with the IRS, and assist clients with the response to any audit.  I have no desire to be the legal representative of any taxpayer, client or not, in proceedings before the IRS or the Department of the Treasury.  If I did I would have become an Enrolled Agent (EA) {I expect the AICPA would also try to do away with the EA credential if it could}. 

I do not necessarily agree with Russ in his belief that, “the one and only tax season for the AFSP was the past filing season”.  But if it is – so be it.  Let us hope that is will be replaced soon with some kind of non-IRS managed voluntary 1040 preparation credential.

As I do in every discussion like this - I do acknowledge that there are, and I know of some, CPAs who know their “stuff”, and some who are actually experts, when it comes to income taxes, and even some who charge reasonable fees (another issue).  It may actually be possible that the best tax preparer, at the best price, for your particular situation is a CPA.  But this is only because of the education, experience, ability, temperament, and other factors that are specific to that individual preparer, and nothing whatsoever to do with his or her possession of the initials CPA.

TTFN