Friday, September 4, 2009


The IRS held another Public Forum on regulating tax return preparers on September 2nd, this time featuring presentations by representatives from various federal and state government agencies.

Speaking at the forum were –

• Michael Brostek, Director of Strategic Issues for the Government Accountability Office (GAO)

• Mike McKenney, Assistant Inspector General for Audit for the Treasury Inspector General for Tax Administration (TIGTA)

• Ron A Wagner, Executive Director of the Oregon State Board of Tax Practitioners

• Ruth Moore, Manager of the Filing Compliance Bureau of the California Franchise Tax Board

• Celeste Heritage, Vice President of Advocation, speaking for the California Tax Education Council

• Wallace Eddleman, Assistant Director of the Maryland Revenue Administration Division

• Jamie Woodward, Acting Commissioner of the New York Department of Taxation and Finance

The GAO discussed its “body of work on issues pertaining to tax preparers” going back to 2002, emphasizing its 2006 undercover sting that “identified mistakes in 19 out of 19 visits to paid preparers working in preparer chain offices”. As I mentioned in earlier posts it was not surprise to me that “preparers working in preparer chain offices” like Henry and Richard, Jackson Hewitt and Liberty made errors on 1040s.

In March of 2008 the GAO “recommended IRS develop a plan to require a single identification number for paid preparers”.

The GAO had also suggested in 2008 that the federal government should consider adopting a “paid preparer regulatory regime” similar to the one currently in place in Oregon.

Mr Brostek did say (highlight is mine) –

While our reports mention many errors in returns filed by paid preparers, we have also said not all of these errors are necessarily the preparer’s fault; the taxpayer may be to blame. Ultimately, preparers must depend on the information provided by the taxpayer in order to accurately prepare returns.”

And -

In closing, paid preparers are such an important part of the federal tax administration system that IRS sometimes refers to them as ‘partners’. The tax system could not function without them.”

After describing what it does, TIGTA indicated that standards and improved oversight is needed, stating, “The current lack of national standards for tax return preparers is cause for concern.”

TIGTA had also conducted an undercover sting operation of 28 “unenrolled” preparers (12 from commercial chains and 16 from small, independently owned offices) in 2008. The result – “TIGTA found that these preparers made substantial errors when completing tax returns and correctly prepared only thirty-none percent of the returns”.

Mr McKenney pointed out that, “While a system of national standards for training and testing would not have prevented all of the problems we encountered, such a system could help to reduce the number of inaccurate returns”.

TIGTA mentioned that the IRS “experience with its volunteer sites provides some indication as to the benefits of using appropriate uniform standards”, called for a single identification number for paid preparers and practitioners, and recommended that, “If the IRS implements new standards and requirements for paid preparers, one function within the IRS should have primary responsibility for overseeing implementation and compliance with those standards”.

Oregon is one of only two states with a regime of regulating tax preparers currently in place. Its “recommendations to increase taxpayer compliance and ensure uniform and high ethical standards of contact for tax preaprers” include –

• Competency must be proven – Oregon’s model of 2 levels has been extremely successful {Oregon provides for a Licensed Tax Preparer and a Licensed Tax Consultant; click here to find out the difference between the two categories – rdf}

• Continued Education Requirements {minimum of 30 hours of continuing education each year required by Oregon – rdf}

• Compliance

• Code of professional conduct

• Consumer education

• Coordinated by local jurisdictions

The speakers representing California, which also currently regulates tax preparers, mentioned that California Registered Tax Preparers (CRTPs) are required to take an initial 60 hours of education from a state-approved provider and 20 hours of continuing education annually “to remain in compliance”. CRTPs are also required to carry a $5,000 tax preparer surety bond.

California supported the recommendation of a “single identification number for paid preparers”. It discussed the fact that in order to register a tax preparer is not required to take a standardized test, but “education providers are required to administer a final examination for all students taking the 60-hour course”. It suggested that, “This same procedure could be used for a national registration program”.

It also suggested (highlight, again, is mine) –

In considering a national program, the imposition of an upfront entrance exam could cause serious harm to the livelihoods of those preparers unable to pass the exam. Some individuals simply are not good test takers. CTEC {California Tax Education Council – rdf} believes it would be better to initially register all unlicensed, collect registration fees to fund the program, and impose an annual continuing education requirement on all registrants. This is with the expectation that after two or three years those individuals would be required to take and pass a standardized test to retain their registration. This approach would be less likely to drive preparers underground and get most on the radar screen upfront.”

Maryland has instituted a program to register and regulate tax preparers. The Maryland Tax Preparers Act mandates that all professional preparers must be licensed by 2010. Preparers with less than 15 years experience must pass an examination with “no less stringent standards” than the Special Enrollment Exam for Enrolled Agents. The license is renewed every two years subject to 16 hours of continuing education.

New York is in the first stages of developing minimum qualification and standards for tax preparers. Acting Commissioner Woodward reported – “Just this past year, Governor Paterson and our Legislature directed my Department to begin to register tax preparers who are not otherwise regulated as licensed accountants or attorneys.”

The New York Department of Taxation and Finance has also conducted undercover operations. Over a two-year period it conducted close to 200 “covert operations” in which “our agents posed as taxpayers seeking to hire tax professionals to prepare income or sales tax returns”.

Woodward went on to say that (all highlights, made gleefully, in below quotes are mine) –

Our investigation uncovered fraud by preparers of all types, from store-front operations to licensed, professional CPAs. All used their knowledge of tax law and tax administration to operate as fraud coaches to help our undercover agents cheat without getting caught. There was nothing subtle about these preparers’ sales pitches or their instructions.”

The forum was told that a CPAgave us a choice of paying 25% or the tax we owed, 50%, 75% or the full tax”.

New York “strongly suggests that the IRS register all tax preparers, including CPAs and attorneys. Each preparer should be given a unique registration/license number and pertinent registration information (name, address, registration/license number) should be made public. Further, the IRS should promote data matching and information sharing with and between States regarding investigations or concerns regarding incompetent or unscrupulous preparers. Minimum competency standards should be developed and thought given to requiring continuing education.

Consideration should be given to regulating the terms of refund anticipation loans through the regulation of preparers themselves. Finally, and perhaps the most difficult, a public education campaign as to the importance of dealing with a reputable preparer is essential.”

I am pleased to see that New York mentioned regulating RALs. I have always said that tax preparers should be prohibited from offering RALs.
Click here to download the various presentations.
The final public meeting on IRS tax-preparer standards will take place Sept. 30 in Chicago, and will feature independent preparers and tax-software industry officials.


No comments: