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