[IMGCAP(1)]The ruling last Tuesday by the U.S. Court of Appeals for the District of Columbia (see “Tax Preparers Defeat IRS in Appeals Court Ruling on Licensing Scheme”) did not surprise me and didn’t surprise many of my colleagues in the accounting profession, including the IRS representatives I know. The justices’ ruling clearly limits the authority of the IRS. By not allowing the IRS to regulate all tax preparers, it handicaps the government agency from being effective in its role of collecting the nation’s revenue.
The justices stretched the boundaries of their authority with an interpretation that is questionable. The law states in an 1884 statute that the IRS may “regulate the practice of representatives of persons before the Department of the Treasury.” This includes CPAs like myself, attorneys and Enrolled Agents, but, according to last Tuesday’s ruling, it does not include every tax preparer who is paid a monetary fee for preparing someone else’s taxes.
When someone signs a tax form that is submitted to the IRS, they are representing their client in some way before the IRS. Therefore it logically follows that the IRS should have some say in ensuring these paid tax preparers are qualified to do the work. Loving and the others who testified against the IRS won by claiming the act of preparing tax returns does not fully constitute practicing before the IRS.
CPAs are governed by their respective states to fulfill continuing education requirements. There are also educational requirements for Enrolled Agents. This makes sense, as I cannot remember a year in which the tax laws didn’t change in some fashion. In our current filing season, those changes included several new forms related to the Medicare surtax, the net investment income tax, changes in the Alternative Minimum Tax, and the Affordable Care Act, among others. Without having attended several courses on these topics, I do not believe that I would be able to serve my clients adequately.
The Internal Revenue Service wants to see that the American public is protected from those who do not know tax law and those who do not know what changes have been made from one year to the next, and to make sure that those hired by Americans to prepare tax returns are using every possible benefit in the tax law and the Internal Revenue Code to their advantage.
Plaintiff Kilian is quoted as saying, “It will cost tax preparers at least $2,000 for the training sessions and the yearly taking of the test.” The IRS-proposed competency exam only would have to be taken once, and the IRS was requiring only 15 CPE hours per year. Insurance companies, law firms, banks, and even the IRS offer CPE for minimal fees. In many cases, companies offer CPE credits for free as an inducement to get tax preparers to refer clients to them. In any professional business, there are expenses and costs that have to be incurred to remain competent. If you do not want to deal with those costs, don’t go into business.
When Enron and WorldCom hit the news, it put a black eye on our profession. This ruling allows the incompetent tax preparer to continue preparing tax returns that may be incorrect without any consequences for doing so -- another black eye on our profession. It is now time for Congress to do what this U.S. Court of Appeals chose to not do: Give the IRS the ability to regulate tax preparers, which, in my opinion is an authority they already explicitly have.
Stephen Mankowski, CPA, is chair of the Tax Policy Committee of the National Conference of CPA Practitioners, and owner of Stephen Mankowski CPA in Hatboro, Pa.