The American Institute of CPAs has written a letter to the Internal Revenue Service offering to help develop the IRS exam for registered tax return preparers by leveraging the AICPA’s own experience with the Uniform CPA Exam.

Patricia Thompson

In a letter commenting on the IRS’s tax return preparer competency exam, the AICPA recommended that the competency examination for prospective registered tax return preparer candidates should test the basic knowledge and skills required to assist individuals in filing accurate tax returns. 

“The content of the examination should be based on an analysis of the most frequently performed activities and most common errors by preparers,” wrote AICPA Tax Executive Committee chair Patricia Thompson in a July 7 letter to IRS Commissioner Douglas Shulman.

The AICPA offered to help the IRS develop its examination, citing experience with developing the Uniform CPA examination. The AICPA said the critical steps in the test development process include defining the material to be tested, developing the test questions, pre-testing the questions, constructing and reviewing test forms so that the final test is fair to all candidates regardless of which test form they take, reviewing candidates’ comments on test questions, protecting the security of the examination and annually reviewing the quality of the examination.

“We believe the examination should address problems faced by tax return preparers that might arise in the preparation of basic Form 1040 returns, including coverage of basic self-employment income,” Thompson added. “In general, we believe the competency examination should include questions which address the breadth of Publication 17, Your Federal Income Tax for Individuals. This publication addresses such topics…as filing status, personal exemptions and dependents, income, gains and losses, adjustments to income, the standard deduction and itemized deductions, and the major tax credits for individuals.”

The IRS’s request for comments on the planned examination is part of its broad initiative to register and regulate all paid tax return preparers. Under guidance issued by the IRS, CPAs, attorneys and enrolled agents will not be required to take the IRS’s competency examination or comply with continuing education requirements set for Registered Tax Return Preparers.  However, non-signing preparers at CPA firms will be subject to the test.

Thompson said the IRS exam should include questions related to ethical responsibilities of tax return preparers. “The examination should address incidences of tax return preparer fraud and negligence, such as the filing of false income tax returns based on inflated personal deductions or business expenses; the high error rates associated with the Earned Income Tax Credit…and certain other tax credits; and preparer penalties and taxpayer penalties,” she said.  “Moreover, we recommend that the examination include questions to remind prospective tax return preparers about the problems associated with making unethical advertising claims, such as:  (1) that they (as preparers) can obtain larger refunds for clients than other preparers; or (2) they base their tax return preparation fee on a percentage of the refund received by clients.”

The letter recommended that the exam be updated annually in the fall so that it reflects the most current tax laws and regulations as the tax filing season begins and that it be administered on a year-round basis.