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 the “previously unenrolled” preparers who would have become RTRPs, via Circular 230. There have been “preparer penalties” for quite a while now.
Paid preparers are required to sign and enter their “identification number” (originally their Social Security number) on all tax returns that they prepare for a fee. 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. The court case apparently kept in place the requirement for all paid preparers to register with the IRS and receive a PTIN -- so the service has the central registry of paid tax preparers that it needed.
I have been preparing 1040s for individuals in all walks of life since February of 1972. Prior to the initiation of the IRS regulation regime, for as long as I have been in the business, and the years before, anyone could prepare a federal income tax return for a fee. There were absolutely no requirements. And the federal income tax system has managed to survive for almost 100 years.
Basically a tax preparer is someone who assists a taxpayer to prepare a required federal form. The 1040 (or 1040A) is a federal form, not unlike a census form or a federal student financial aid form. The taxpayer is responsible for all the information reported on the form -- the preparer provides guidance to the taxpayer on what is required to be reported and how it should be reported.
The IRS argues that their required licensing of paid preparers would reduce tax fraud. This is not true. Regardless of any required licensing program, crooked taxpayers will always find crooked or unethical preparers, “underground” or otherwise, and crooked or unethical preparers will always find willing or naive taxpayers. Licensing and regulation of CPAs did not prevent Enron.
There is no real “need” to require federal “licensing” of paid tax return preparers. But there is a problem that needs to be addressed.
Who gets a shingle?
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).
The answer would be some kind of voluntary “certification program” where a tax preparer could receive a universally accepted professional designation 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 already has such a program that designates preparers as EAs. However, this designation includes the ability to “practice” before the IRS and, as such, the enrollment examination is very extensive and includes issues of taxpayer representation. Many preparers, like myself, are happy just preparing returns and are not interested in taxpayer representation.
What is needed is a lower-level designation related to preparation only. Perhaps a “Certified Tax Return Preparer.” You could look at it like this: The CTRP is like an undergraduate degree and the EA is like a Master’s.
But 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.
And so for professional tax preparers, any voluntary certification program, and its professional designation, should be administered by an independent industry-based organization like a “National Institute of Certifed 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. But none 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, the AICPA, the American Bar Association, 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 (during the traditional tax filing season) 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 passed the IRS-sponsored competency test and been designated as an RTRP under the IRS tax return preparer regulation regime.
• Tax professionals who have been licensed or certified to prepare income tax returns under a required state 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.
The “grandfathering period” would last for two years following the initiation of the certification program. Tax preparers who want to take advantage of the grandfathering exemption from testing would need to apply for the CTRP designation during this 24-month period.
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 each year. The 48 hours must include three hours of “tax updates” per year (a total of nine 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.
10 Comments
For those wishing to obtain a credential which demonstrates that they have passed a credentialing examination to show their clients that they are competent the Accreditation Council for Accountancy and Taxation (ACAT) offers two different credentials the basic credential is the Accredited Tax Preparer (ATP) which is an entry level credential and the more advanced credential is the Accredited Tax Adviser(ATA). Both of these credentials require testing and a maintenance of continuing education credits in both taxation and ethics.
ACAT credentialing in voluntary it demonstrates to your clients that you have taken steps to prove your competency.
I still support requiring those who are not CPA's or EA's to pass a test in order to prepare tax returns I also believe that continuing education is a must how can you keep up with the ever changing tax laws without continuing education. I have been preparing tax returns for 46 years and I passed my EA examination shortly after going into the profession on a full time basis. Even when I was only a part time preparer I obtained continuing education credits each year as I could never figure out how you kept up with the laws without taking them.
The IRS has a right to demand that those who prepare tax returns are competent we have all seen to many returns prepared with many errors and although licensing will not stop this it will help curb this and maybe eliminate some of these people from preparing bad tax returns. This is also not to say that all of those unlicensed or UN-credentialed all do bad work we know this is not the case but unfortunately as we all know one bad apple can ruin the entire barrel.
Please consider looking at the ACAT credentials "every professional needs a professional credential"
Posted by: ROY F | February 5, 2013 4:40 PM
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I have written an update on Loving V IRS developments at my blog THE TAX PROFESSIONAL - http://thetaxprofessional.blogspot.com/2013/02/i-couldnt-leave-without-posting-this.html
Robert D Flach
Posted by: rdftaxpro | February 4, 2013 4:34 AM
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This was a devastating blow in the quest to seize power and repay supporters. In order to weild power the taxation system must be entirely controlled by the collectors with sweeping powers to seize assets. The people must be made poorer without their knowing. It's going to be harder now but there is hope. If the dems can take the house it will be back on the table. More money must be taken from the people for proper governmental administration. How about keeping the government out of it and for instance have people go to school, take a test and get their CPA. Then they could call themselves ..CPAs. Then the public could say, "that guy is a CPA and I want to go to him because he is a CPA". Then another guy could have a good education and 20 years experience but has no "designation". The public could then say that " all I have is a W-2 or a 1099-R and some interest, I really don't need a CPA and Joe has been doing a good job for me for 20 years and I've never had a problem". The market place is the ultimate filter and equalizer if it is allowed to work. As long as government intervenes with the support of beneficiaries, the market will not work as it should. Fix the House, the Senate, and the Whitehouse first.
Posted by: hisexcellency | February 2, 2013 1:24 PM
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The Court has recently chosen not to stay the injunction as the IRS had requested. It suggested that the Service maintain the RTRP program as a voluntary certification. If the IRS chooses not to appeal the decision, or does and loses, and decides it will indeed offer the RTRP designation as a voluntary one, then this editorial becomes academic, and there would be no need for the NICTRP.
If a return I prepared was audited by the IRS I would certainly "stand before the IRS and defend" the return, as I am permitted to as an "unenrolled" preparer because I prepared the return. What I mean by representation is representing taxpayers whose returns I did not prepare in proceedings before the IRS. Representation is a separate practice within the tax professional community, and is certainly different from mere preparation.
Robert D Flach
Posted by: rdftaxpro | February 2, 2013 5:24 AM
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I have been preparing taxes in Oregon for 23 years. To be able to do that, I had to take an 80 hour Tax Course, take a test (with a fee) from the Oregon Tax Practitioners Board, pay a licensing fee, work 780 hours under a Consultant or EA or CPA, take another test, pay another fee, and then became a Licensed Tax Consultant. Only then was I allowed to charge a fee under my own name. All Oregon licensees MUST take a minimum of 30 hours of education ANNUALLY. We have to prove by CPEs that we have done this. The IRS has told us many times that Oregon preparers have the lowest % of errors in their returns. We are proud of our professionalism and will take to the Board anyone who prepares without this preparation and the licensing. My PTIN is a 4 digit number, one of the first issued, and it was FREE for more than 10 years! We do not hesitate to report any licensee who does anything illegal or improper. The writer of the article certainly brings out why our state is proud of its Tax Practitioners--who were not allowed to Grandfather in!
Posted by: AliceM | February 2, 2013 12:13 AM
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I agree with the article that people who have their taxes prepared ought to be able to look to a license or certification that says that the preparer at least has a passing knowledge of the 1040 and the state return if applicable. I think that the states should all step up to the plate and get it in place if the Feds go away. Otherwise it is still volunteer.
Just an idle question, do the big national franchises train their staff in states that don't require licenses the same as they do in the states that do? Theoretically these places should be cheaper than CPA's or EA's. However Block here in California charges more than I, an EA, does. I think the fees are outrageous. I should raise my rates but I like my little guy clients! I am just a blue collar gal in white collar clothes.
I don't agree with Southern CPA who thinks that representation should be part of every practice. It's often not a good idea to represent your own client and could, in fact, be a legal conflict of interest if you missed something. This is a point that has been in a lot of the ethics classes I have taken recently.
Posted by: ShortStuff | February 1, 2013 1:43 PM
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Robert, I skimmed your article. For shame, you should know by now that the term "certified" will never be allowed to be used. As an EA for longer than I want to admit, I took the RTRP exam in Dec. because it is a designation that says something & means something, unlike Enrolled Agent. The test was reasonable, in my opinion. It had 2 or 3 questions, such as, 'who is buried in Grant's tomb", but there were a few thought provoking questions. However, this RTRP is the 'camel getting his nose under the tent'. It will grow & grow. The annual fee times 1.1 million PTIN holders will give them ample funds to do whatever. Your point about 'computer jockeys' is well put. I had this very discussions with a former owner of a bunch of major franchise offices years ago. In the old days, you had to read the lines ... I think that this RTRP thing will end up in Congress & the plaintiff's had some very interesting points that I assume that Congress will address &/or the issue will die. Happy start of the season!
Posted by: walthm | February 1, 2013 10:27 AM
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Wow, there is so much misinformation in this article, I don't know where to start.
First, in the example of CPAs, attorneys, and doctors, the maintenance of the professional designation is not performed by industry based organizations... it is performed by the state governments. Being a CPA, attorney, or doctor requires a license by a state agency. Now, the industry organizations are certainly involved in developing the exams, CPE, etc... but once you get your state-issued license, joining these organizations is voluntary. But they have no bearing on your ability to practice... that is controlled by your state-issued license.
Second, I don't understand how you can say you want to prepare returns, but are not interested in representation before the IRS. If you screw up a return, you should be forced to stand before the IRS and defend the position. It should be an all or nothing deal.
Third, I don't understand how a voluntary designation will result in more accurate tax returns. Those people who truly want to be great at what they do, generally become EAs (if they are not already an attorney or CPA). Taxpayers who have more complex returns, and more ability to afford the fees, already choose someone from one of those three groups.
Where the fraud is occuring, and where the problems live, are in the taxpayers who can only afford an unenrolled preparer. And, what incentive is there for an unenrolled preparer, especially the fraudlent ones, to get involved with a voluntary scheme?
And let's not forget, in most of the states, there is a state income tax return involved as well. What would the voluntary program do about state tax returns?
I agree the IRS should not be the body that licenses preparers. However, someone needs to. In many states, you need a license to cut hair, create floral arrangements, and paint fingernails. Dealing with someone's personal financial information should require more professional training and licensing than someone who cuts hair.
Let the states regulate them. Congress can pass a law saying that the IRS is not allowed to accept a return that has been signed by a paid preparer that is not a holder of a state license. You can have model state requirements if you like. And preparing a tax return for a fee, without signing it, should carry a huge, huge penalty.
Posted by: SouthernCPA | February 1, 2013 9:52 AM
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I strong support this idea. The IRS does not certify attorneys nor does it CPAs, and these designations are allowed to complete tax returns. As a member of more than a few Tax and accountancy related societies, I have earned various credentials (ATA, ATP, CPTx, RSBA) and feel that these, coupled with the required CPE give me a stong base of knowledge, skills, and professionalism.
It certainly to give credence to the fact that the practice of tax preparation is a profession and that the professional societies, and any board that they may develop, would provide the standard of performance that is expected to be met.
Posted by: mhjacobson | February 1, 2013 9:52 AM
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One major problem that seems to be consistently overlooked by tax preparers in general in response to these articles is that the ramifications to a taxpayer of filing an inaccurate report can be severe. By time the inaccuracy penalties, interest and other potential sanctions are calculated, an individual can face tens of thousands of dollars in tax penalties, simply because they unwittingly relied on an inexperience, slick-talking tax preparer.
With that said, I believe the bar should set higher, and ALL tax preparers should have to earn a higher designation - at NOT COST. Tax preparers should not be allowed to create junk returns, and then because they are not EAs, CPAs, or Attorneys, be able to escape real accountability for the mess they created to a person's life - and livelihood. The fact of the matter is, screwing up a tax return can have major ramifications for the person the receiving end - not the least being liens, garnishments, and interest that have catastrophic effects. There has to be accountability.
I believe the person who prepares the tax return - no matter what their designation - should be REQUIRED to appear before the IRS when an initial audit occurs (maybe a pre-audit), and explain the rationale they used for applying any such credit, deduction, etc. And, if the credit had no basis, then they should be liable for all penalties and interest accrued to the taxpayer (of course, if the tax preparer and Taxpayer colluded, they should both be liable).
It boils down to this: If the Tax Preparer is not "prepared" to stand before the IRS and justify the deduction/credit, then they simply should not be allowed to prepare tax returns, end of story. On a side note, I really enjoyed this article.
Posted by: admin@GoldingTaxSolutions.com | February 1, 2013 3:55 AM
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