First of all, pardon me for mangling the Bard.
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The time seems right for a definitive, and final, series of posts on the topic of “enrolled” income tax preparers vs “unenrolled” income tax preparers.
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FYI, much of the background information in this post is taken from the latest editions of IRS Publication 947 (Practice Before the IRS and Power of Attorney), IRS Publication 470 (Limited Practice Without Enrollment) and IRS Circular 230 (Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service). You can access these publications at www.irs.gov.
Let me begin by telling you that the Internal Revenue Service does not currently regulate the actual preparation of federal income tax returns. The above publications have nothing to do with who is authorized, or “enrolled”, or qualified to prepare a Form 1040. The total extent of IRS involvement in the business of actually preparing tax returns is the administration of penalties imposed on tax preparers (aka “preparer penalties”) most of which were created by Acts of Congress.
What the IRS does regulate, and identify who is authorized, enrolled or qualified, is the ability to “Practice Before the IRS”.
Publication 947 tells us that –
“The Office of Professional Responsibility is responsible for administering and enforcing the regulations governing practice before the IRS. These regulations are published as Treasury Department Circular No. 230. The Office's responsibility includes making determinations on applications for enrollment to practice before the IRS and conducting disciplinary proceedings relating to those eligible to practice.”
The Pub also tells us that (highlights are mine) –
“Practice before the IRS covers all matters relating to any of the following.
• Communicating with the IRS for a taxpayer regarding the taxpayer's rights, privileges, or liabilities under laws and regulations administered by the IRS.
• Representing a taxpayer at conferences, hearings, or meetings with the IRS.
• Preparing and filing documents with the IRS for a taxpayer.
• Corresponding and communicating.
Just preparing a tax return, furnishing information at the request of the IRS, or appearing as a witness for the taxpayer is not practice before the IRS. These acts can be performed by anyone.”
Who, under Circular 230, is authorized to “Practice Before the IRS”?
“Attorneys. Any attorney who is not currently under suspension or disbarment from practice before the IRS and who is a member in good standing of the bar of the highest court of any state, possession, territory, commonwealth, or of the District of Columbia may practice before the IRS.
Certified public accountants (CPAs). Any CPA who is not currently under suspension or disbarment from practice before the IRS and who is duly qualified to practice as a CPA in any state, possession, territory, commonwealth, or in the District of Columbia may practice before the IRS.
Enrolled agents. Any enrolled agent in active status may practice before the IRS.
Enrolled retirement plan agents. Any enrolled retirement plan agent in active status may practice before the IRS. The practice of enrolled retirement plan agent is limited to certain Internal Revenue Code sections that relate to their area of expertise, principally those sections governing employee retirement plans.
Enrolled actuaries. Any individual who is enrolled as an actuary by the Joint Board for the Enrollment of Actuaries may practice before the IRS. The practice of enrolled actuaries is limited to certain Internal Revenue Code sections that relate to their area of expertise, principally those sections governing employee retirement plans.”
Student attorneys and CPAs are permitted to practice under limited circumstances.
An “unenrolled return preparer” is defined as “an individual other than an attorney, CPA, enrolled agent, or enrolled actuary who prepares and signs a taxpayer's return as the preparer, or who prepares a return but is not required (by the instructions to the return or regulations) to sign the return.”
While the above definition includes someone “who prepares a return but is not required (by the instructions to the return or regulations) to sign the return” – i.e. someone who is not paid for preparing the return, such as a parent preparing a return of a child or a son preparing the return of an elderly parent, or a person who prepares his own return - I must note that whenever I have used the term “unenrolled preparer” in the past, either in TWTP posts, guest posts, or comments on other blogs, I have meant a “paid” unenrolled preparer – an individual other than an attorney, CPA, enrolled agent, or enrolled actuary who prepares tax returns for a fee. I am sure most readers have been smart enough to understand that this is what I meant. However, perhaps I should use instead the term “unenrolled practitioner”.
The “Scope of Authority” of an unenrolled practitioner – the extent to which he/she can “practice” before the IRS - is explained in Publication 470 –
“An unenrolled individual who signs a return as its preparer may act as the taxpayer’s representative if accompanied by the taxpayer, or by filing a written authorization from the taxpayer as provided herein in section 6. Such representation is limited to practice before examining officers of the Examination Division in the offices of District Directors and in the Office of International Operations, and may only encompass matters concerning the tax liability of the taxpayer for the taxable year covered by that return, subject to the limitations herein prescribed.”
An unenrolled return preparer who has prepared a taxpayer's return for a year which is under examination by the IRS can continue to deal with the IRS on behalf of the taxpayer during the examination of the specific return. But an unenrolled return preparer cannot represent a taxpayer before any other office of the IRS, execute closing agreements, claims for refund, or waivers; or otherwise represent taxpayers before the IRS.
In the course of my 38 tax season tenure tax returns I have prepared for a client have, on very few occasions, been selected for audit. In such a situation I meet with the client before the scheduled audit to discuss the issues and organize documentation, and, if the client so requests, I will attend the audit with the client to assist in explaining items reported on the return. Once or twice I have attended the audit alone as the client’s representative under a signed “Power of Attorney”. As an unenrolled practitioner I am allowed to do so.
All my clients “check the box” at the bottom of the tax return to allow the IRS to discuss the return with me.
This is the extent of my desire to deal with the IRS – in response to questions about or review of a return that I have prepared. I have absolutely no desire to represent taxpayers before the Internal Revenue Service in any other capacity. I do not offer “client representation” services and do not wish to get involved in direct dealings with the IRS regarding returns I have not personally prepared. So there is absolutely no reason why I should choose to become an “Enrolled Agent”.
I do agree that tax professionals who wish to represent taxpayers before the IRS on a regular basis on matters other than returns they have personally prepared should apply to take the Special Enrollment Examination and become an Enrolled Agent.
Attorneys and CPAs are authorized to “Practice Before the IRS” by virtue of having passed the bar or CPA exams. There are no special requirements for an attorney or CPA to take continuing education in federal income taxes, other than the standard CPE requirements that would apply to the particular “designation”. There is nothing in Circular 230 or any other IRS publication that states that an attorney or CPA is authorized or qualified or enrolled to prepare 1040s, nor is there anything that says that just because a person is an attorney or a CPA he/she is considered to be more knowledgeable or competent or proficient in the actual preparation of individual income tax returns than an “unenrolled” practitioner.
to be continued . . . . .
Before I go – I welcome, and look forward to, comments, both pro and con, from colleagues of all categories (enrolled and unenrolled) among the tax preparation and tax blog communities on this post and the others in the series - as long as you continue the discussion in a civil manner. I would also like readers to point out any true factual errors in my reading or interpretation of the IRS publications or with any other individual law or policy discussed in this series, or to verify that I am “spot on” – again as long as it is presented in a civil manner.
TTFN
FYI, much of the background information in this post is taken from the latest editions of IRS Publication 947 (Practice Before the IRS and Power of Attorney), IRS Publication 470 (Limited Practice Without Enrollment) and IRS Circular 230 (Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers before the Internal Revenue Service). You can access these publications at www.irs.gov.
Let me begin by telling you that the Internal Revenue Service does not currently regulate the actual preparation of federal income tax returns. The above publications have nothing to do with who is authorized, or “enrolled”, or qualified to prepare a Form 1040. The total extent of IRS involvement in the business of actually preparing tax returns is the administration of penalties imposed on tax preparers (aka “preparer penalties”) most of which were created by Acts of Congress.
What the IRS does regulate, and identify who is authorized, enrolled or qualified, is the ability to “Practice Before the IRS”.
Publication 947 tells us that –
“The Office of Professional Responsibility is responsible for administering and enforcing the regulations governing practice before the IRS. These regulations are published as Treasury Department Circular No. 230. The Office's responsibility includes making determinations on applications for enrollment to practice before the IRS and conducting disciplinary proceedings relating to those eligible to practice.”
The Pub also tells us that (highlights are mine) –
“Practice before the IRS covers all matters relating to any of the following.
• Communicating with the IRS for a taxpayer regarding the taxpayer's rights, privileges, or liabilities under laws and regulations administered by the IRS.
• Representing a taxpayer at conferences, hearings, or meetings with the IRS.
• Preparing and filing documents with the IRS for a taxpayer.
• Corresponding and communicating.
Just preparing a tax return, furnishing information at the request of the IRS, or appearing as a witness for the taxpayer is not practice before the IRS. These acts can be performed by anyone.”
Who, under Circular 230, is authorized to “Practice Before the IRS”?
“Attorneys. Any attorney who is not currently under suspension or disbarment from practice before the IRS and who is a member in good standing of the bar of the highest court of any state, possession, territory, commonwealth, or of the District of Columbia may practice before the IRS.
Certified public accountants (CPAs). Any CPA who is not currently under suspension or disbarment from practice before the IRS and who is duly qualified to practice as a CPA in any state, possession, territory, commonwealth, or in the District of Columbia may practice before the IRS.
Enrolled agents. Any enrolled agent in active status may practice before the IRS.
Enrolled retirement plan agents. Any enrolled retirement plan agent in active status may practice before the IRS. The practice of enrolled retirement plan agent is limited to certain Internal Revenue Code sections that relate to their area of expertise, principally those sections governing employee retirement plans.
Enrolled actuaries. Any individual who is enrolled as an actuary by the Joint Board for the Enrollment of Actuaries may practice before the IRS. The practice of enrolled actuaries is limited to certain Internal Revenue Code sections that relate to their area of expertise, principally those sections governing employee retirement plans.”
Student attorneys and CPAs are permitted to practice under limited circumstances.
An “unenrolled return preparer” is defined as “an individual other than an attorney, CPA, enrolled agent, or enrolled actuary who prepares and signs a taxpayer's return as the preparer, or who prepares a return but is not required (by the instructions to the return or regulations) to sign the return.”
While the above definition includes someone “who prepares a return but is not required (by the instructions to the return or regulations) to sign the return” – i.e. someone who is not paid for preparing the return, such as a parent preparing a return of a child or a son preparing the return of an elderly parent, or a person who prepares his own return - I must note that whenever I have used the term “unenrolled preparer” in the past, either in TWTP posts, guest posts, or comments on other blogs, I have meant a “paid” unenrolled preparer – an individual other than an attorney, CPA, enrolled agent, or enrolled actuary who prepares tax returns for a fee. I am sure most readers have been smart enough to understand that this is what I meant. However, perhaps I should use instead the term “unenrolled practitioner”.
The “Scope of Authority” of an unenrolled practitioner – the extent to which he/she can “practice” before the IRS - is explained in Publication 470 –
“An unenrolled individual who signs a return as its preparer may act as the taxpayer’s representative if accompanied by the taxpayer, or by filing a written authorization from the taxpayer as provided herein in section 6. Such representation is limited to practice before examining officers of the Examination Division in the offices of District Directors and in the Office of International Operations, and may only encompass matters concerning the tax liability of the taxpayer for the taxable year covered by that return, subject to the limitations herein prescribed.”
An unenrolled return preparer who has prepared a taxpayer's return for a year which is under examination by the IRS can continue to deal with the IRS on behalf of the taxpayer during the examination of the specific return. But an unenrolled return preparer cannot represent a taxpayer before any other office of the IRS, execute closing agreements, claims for refund, or waivers; or otherwise represent taxpayers before the IRS.
In the course of my 38 tax season tenure tax returns I have prepared for a client have, on very few occasions, been selected for audit. In such a situation I meet with the client before the scheduled audit to discuss the issues and organize documentation, and, if the client so requests, I will attend the audit with the client to assist in explaining items reported on the return. Once or twice I have attended the audit alone as the client’s representative under a signed “Power of Attorney”. As an unenrolled practitioner I am allowed to do so.
All my clients “check the box” at the bottom of the tax return to allow the IRS to discuss the return with me.
This is the extent of my desire to deal with the IRS – in response to questions about or review of a return that I have prepared. I have absolutely no desire to represent taxpayers before the Internal Revenue Service in any other capacity. I do not offer “client representation” services and do not wish to get involved in direct dealings with the IRS regarding returns I have not personally prepared. So there is absolutely no reason why I should choose to become an “Enrolled Agent”.
I do agree that tax professionals who wish to represent taxpayers before the IRS on a regular basis on matters other than returns they have personally prepared should apply to take the Special Enrollment Examination and become an Enrolled Agent.
Attorneys and CPAs are authorized to “Practice Before the IRS” by virtue of having passed the bar or CPA exams. There are no special requirements for an attorney or CPA to take continuing education in federal income taxes, other than the standard CPE requirements that would apply to the particular “designation”. There is nothing in Circular 230 or any other IRS publication that states that an attorney or CPA is authorized or qualified or enrolled to prepare 1040s, nor is there anything that says that just because a person is an attorney or a CPA he/she is considered to be more knowledgeable or competent or proficient in the actual preparation of individual income tax returns than an “unenrolled” practitioner.
to be continued . . . . .
Before I go – I welcome, and look forward to, comments, both pro and con, from colleagues of all categories (enrolled and unenrolled) among the tax preparation and tax blog communities on this post and the others in the series - as long as you continue the discussion in a civil manner. I would also like readers to point out any true factual errors in my reading or interpretation of the IRS publications or with any other individual law or policy discussed in this series, or to verify that I am “spot on” – again as long as it is presented in a civil manner.
TTFN
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