Monday, January 23, 2023


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.

No comments: