The Internal Revenue Service has released a new revenue procedure describing the details of its new voluntary tax preparer continuing education program, known as the Annual Filing Season Program.
The IRS announced the new program last week after the agency lost a series of court decisions over the IRS’s statutory authority to impose mandatory tax preparer testing and continuing education (see IRS Offers Voluntary Tax Preparer Education Program). Even before the IRS formally announced the new program, the American Institute of CPAs criticized the IRS’s plans for voluntary tax preparer certification and warned it could be unlawful (see AICPA Says IRS Voluntary Tax Preparer Certification Program Is Unlawful). Other objections have arisen to the program since it was announced, however (see There Are So Many Things Wrong with the Annual Filing Season Program).
The new program currently does not have a formal certification such as the now-invalidated Registered Tax Return Preparer, or RTRP program, but it will list tax preparers who comply with the education program in an online database.
While there is not a formal certification exam such as the one for the RTRP, tax preparers would have to take an annual refresher course administered by an IRS-approved continuing education provider. According to the new revenue procedure, Rev. Proc. 2014-42, which the IRS released Monday, the refresher course would have to include a test of the material presented during the course and given at the end of the course. The test would have to be a minimum of 100 questions, and to successfully complete the refresher course, the applicant would have to answer at least 70 percent of the questions correctly. Those who meet the necessary education and testing qualifications would receive a “Record of Completion” from the IRS and be listed in the online database.
However, attorneys, CPAs and EAs who are already covered by Circular 230 requirements would not be required to take the refresher course as a condition of eligibility to apply for a Record of Completion with the IRS. That also applies to individuals who have already passed the RTRP examination, and tax preparers who are licensed or registered by any state, territory or possession of the U.S., including a commonwealth, or the District of Columbia, after passing an examination covering federal tax matters, and tax return preparers who have passed an examination covering federal tax matters administered by an entity recognized by the IRS as an eligible entity.
Dan Alban, lead attorney with the Institute of Justice, who represented the three independent tax preparers—Sabina Loving of Chicago, John Gambino of Hoboken, N.J., and Elmer Kilian of Eagle, Wisc.— in the 2013 case that invalidated the IRS’s mandatory RTRP program, Loving v. IRS, said he welcomed the IRS’s new program.
“We’re happy to see the IRS move forward with a voluntary certification program rather than a mandatory licensing scheme,” he said in an email Tuesday. “That will allow both preparers and taxpayers to decide whether they value IRS certification. From what I can tell, it would seem to be in compliance with the primary holding of the Loving decision and permanent injunction.”
However, Alban acknowledged that the AICPA may have some grounds for challenging the program, including the AICPA’s objection that the IRS did not issue a formal notice and solicitation for comments on the new program in accordance with the Administrative Procedures Act, or APA. “I understand that the AICPA raises additional legal issues relating to whether the program complies with procedural notice and comment requirements under the APA, but I have no comment or additional thoughts on that issue,” he added.
The IRS noted in its new revenue procedure that the new, voluntary Annual Filing Season Program is designed to encourage tax return preparers who are not attorneys, CPAs or EAs to complete continuing education courses for the purpose of increasing their knowledge of the law relevant to federal tax returns.
“The accuracy of tax return preparation is essential to effective tax administration,” the IRS noted. “More than half of the United States’ taxpayers rely on paid tax return preparers to assist them in preparing their federal tax returns annually. While 40 percent of paid tax return preparers are credentialed as attorneys, CPAs, or EAs, most of the other 60 percent of paid tax return preparers lack any kind of professional credential or license. Basic competency for paid tax return preparers is essential to accurate return preparation, improved tax compliance, effective tax administration, and protecting taxpayers from preparer errors.”
The IRS noted that in the wake of the court decisions in the Loving v. IRS case, until legislation is enacted, the Treasury Department and the IRS have established an Annual Filing Season Program designed to encourage tax return preparers who are not attorneys, CPAs or EAs to improve their knowledge of federal tax law.
“An unenrolled tax return preparer who successfully completes continuing education courses related to federal tax law will generally have a better understanding of the tax law necessary to represent a taxpayer before the IRS during an examination than an unenrolled individual who has not taken any continuing education courses related to federal tax law,” said the IRS.
The new revenue procedure modifies and supersedes Revenue Procedure 81-38, and in its place provides rules permitting unenrolled tax return preparers who have an Annual Filing Season Program Record of Completion to represent taxpayers during examination in certain limited circumstances.
“The Annual Filing Season Program described in this revenue procedure is voluntary and no tax return preparer is required to participate,” the IRS added. “Further, any individual may apply for and receive an Annual Filing Season Program Record of Completion if he or she meets the requirements of this revenue procedure. This revenue procedure does not restrict any individual from preparing and signing tax returns and claims for refund nor does it change the requirement that paid tax return preparers must obtain a Preparer Tax Identification Number (PTIN).”
Record of Completion
The IRS noted that an Annual Filing Season Program Record of Completion is not required for an attorney, CPA, EA, enrolled actuary or enrolled retirement plan agent to represent taxpayers before the IRS, and the new revenue procedure does not affect or limit the ability of attorneys, CPAs, or EAs to represent taxpayers before the IRS. The rules governing their practice before the IRS are set forth in Circular 230.
Applicants who would be required to complete the refresher course would have to successfully complete 18 hours of continuing education from an IRS-approved continuing education provider during the calendar year prior to the year for which the Record of Completion is sought. The total hours completed would have to consist of two hours of ethics or professional responsibility, 10 hours of federal tax law topics and six hours of federal tax law updates. For example, to receive a Record of Completion that will be effective for tax returns and refund claims prepared and signed during the 2016 calendar year, an applicant will have to complete 18 hours of continuing education meeting the requirements during the 2015 calendar year. Applicants who successfully complete the refresher course will have satisfied the requirement to take six hours of federal tax law updates.
Applicants who are exempt from the refresher course will have to successfully complete 15 hours of continuing education from an IRS-approved continuing education provider during the calendar year prior to the year for which the Record of Completion is sought, the IRS noted. The total hours completed must consist of two hours of ethics or professional responsibility, 10 hours of federal tax law topics, and three hours of federal tax law updates.
As a transition rule, applicants for the Annual Filing Season Program for the 2015 calendar year are required to complete 11 hours of continuing education during 2014. For applicants who must complete the refresher course, the refresher course will satisfy six hours of the 11-hour requirement. The other five hours must consist of 3 hours of federal tax law topics and 2 hours of ethics or professional responsibility. Applicants not required to take the refresher course would have to complete eight hours of continuing education consisting of three hours of federal tax law updates, three hours of federal tax law topics, and two hours of ethics or professional responsibility.
Restrictions on Eligibility
The IRS imposed some restrictions on eligibility for the program, prohibiting any individual who is disbarred, suspended or disqualified from practice before the IRS under Circular 230, during the period for which the individual is disbarred, suspended or disqualified. In addition, an individual who has been convicted of a felony involving a financial matter, tax matter or other violation of the public trust within the five-year period preceding the date of the application to participate in the Annual Filing Season Program is also prohibited. An individual who is enjoined from representing persons before the IRS, preparing tax returns, or engaging in other conduct subject to injunction for the time period during which the injunction is in effect is also restricted from participating.
The IRS also prohibited any individual who has engaged in misconduct that would have violated Circular 230 if the individual were subject to Circular 230, including knowingly providing false or misleading information, or participating in providing false or misleading information, to the IRS, as well as any individual who is not in compliance with his or her personal federal tax obligations (including employment taxes for which the applicant is personally liable), for the period of non-compliance.
“The fact that the applicant is in a dispute with the IRS regarding a federal tax liability or has entered into an installment agreement (which is not in default), an offer- in-compromise, or both to satisfy a federal tax liability will not be treated as non-compliant with a personal federal tax obligation for purposes of this section,” the IRS noted.
The IRS said an individual may have their Annual Filing Season Program Record of Completion revoked for a period that the IRS may determine.
Describing the Designation
In addition, the IRS said a tax preparer who receives a Record of Completion under the Annual Filing Season Program, from the IRS may not use the terms “certified,” “enrolled,” or “licensed” to describe this designation or in any way imply an employer/employee relationship with the IRS or make representations that the IRS has endorsed the tax return preparer.
However, tax preparers who receive a Record of Completion for a calendar year may represent that they hold a valid Annual Filing Season Program Record of Completion for that calendar year and have complied with the IRS requirements for receiving the Record of Completion.