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IRS's Williams: It's Test-Taking Time

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Now that the Internal Revenue Service has issued the first of its Registered Tax Return Preparer designations, one of the service's priorities will be getting some 340,000 preparers to take the necessary competency test, according to David R. Williams, director of the IRS Return Preparer Office.

David Williams

Since the test became available last November, some 3,000 preparers have passed it, and approximately 6,000 others have scheduled theirs, according to Williams. He declined to discuss actual pass rates, citing the need for a larger sample size, but he did note that 340,000 tax preparers have provisional Preparer Tax Identification Numbers but are not CPAs, tax attorneys or Enrolled Agents, who are all exempt from exam requirement.

"One of the most important messages we're trying to get out to the 340,000 remaining people who need to take the exam is that it's time to take the test," he said. "Our big concern is that most in that 340,000 know taxes well but haven't taken an exam of any kind in many years." Williams added that he is satisfied with the number of just some 3,000 designations so far. "There's test anxiety out there and people naturally procrastinate. Plus the IRS launched the exam in November and there was a filing season coming up."

Test registrations have started to pick up now that filing season is over.

 

THE REGIME

In addition to obtaining and annually renewing a PTIN, non-exempt return preparers must also complete 15 hours of continuing education annually, pass a one-time competency test by Dec. 31, 2013, and pass a tax compliance check. CPAs, attorneys and EAs are exempt from the new education and testing requirements because they already have separate requirements. Also exempt are non-signing preparers employed by law or accounting firms who are supervised by CPAs, attorneys or EAs and those who do not prepare the Form 1040 series.

Preparers with a testing requirement can schedule the test by accessing their PTIN account online. The test can be taken at more than 260 sites, and the test fee is $116. Tax preparers can learn more online about the test, which is administered by the testing company Prometic.

"We believe there are hundreds of thousands of preparers who prepare returns, and the vast majority are highly professional and committed to doing a good job," Williams said. "Others run the gamut from not knowledgeable to actively fraudulent." One of the key areas for inaccuracy or fraud was the Earned Income Tax Credit, he noted.

Williams was instrumental in rolling out the new mandatory registration requirement for all federal tax return preparers, helping to lay the groundwork for testing, education and other requirements now underway. Many are working to comply with and have applauded the new requirements. A small number have challenged need for the designation, however, citing in some cases decades of tax preparation with no testing, CPE or designations.

Williams believes that "these changes are improving the tax professional industry by establishing standards that promote competent and ethical tax professionals." He added that RTRP is the "first credential that will have the IRS stamp since the [Enrolled Agent]."

 

GETTING THE WORD OUT

Williams said that the IRS plans imminent efforts to communicate the need to meet the designation requirements to tax preparers and tax prep associations and groups. The Return Preparer office has also set up a Facebook page.

Spreading the word completely could be daunting: In its Return Preparer Review issued in 2009, the IRS admitted that the exact number of paid tax return preparers was unknown, but estimates that between 900,000 and 1.2 million individuals prepared tax returns for a fee.

"To date we've issued only about 850,000 PTINs, and about 710,000 are active," Williams said. "The challenge for us is, how do we address the whole spectrum of all paid preparers? We are just learning about the preparer population."

The IRS plans to establish a public database later this year of PTIN holders that will specify what credentials, if any, a person has, including the new RTRP credential. Williams said the IRS also plans to help promote public awareness of the importance of the RTRP designation and the qualifications needed to acquire it.

15 Comments

In response to the person who referenced license requirements for haircutters, manicurists, etc. Those requirements were established at the request of the occupational groups themselves, as barriers to entry to those occupations. Not to denigrate haircutters et al., but it's too easy to become one. People cut each other's hair all the time, and it doesn't really require mastering much technical knowledge. The difference between the barriers to entry in these occupations and the new barrier to entry in paid tax preparation is that it's the regulatory body (IRS) that is establishing the requirements this time. In the case of the other occupational barriers, it was the groups themselves who wanted to restrict entry to the occupations. Are you aware of any lobbying by tax preparers for these requirements? I certainly don't recall having heard of any. These new IRS requirements are rather different from other occupational barriers to entry. With the tremendous political pressure on the IRS to maximize tax collections (i.e., reduce the "tax gap"), the new requirements are the IRS's design to control the number and type of people who can legally prepare tax returns. The IRS also anticipates that the requirements will enlist paid preparers in its efforts to apply and administer the tax code.

Posted by: janejohn | May 26, 2012 8:36 AM

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It mystifies me that so many people who prepare taxes for compensation are so opposed to a certification process. We can all gripe about government interference and the costs involved with the testing process but what it really boils down to is that people are afraid they will not pass the test. If you prepare taxes for a living, you should quite easily be able to pass an OPEN BOOK exam, for cryin' out loud! Instead of looking at all the negatives, why not re-frame this issue? Manicurists need to be licensed, dog groomers need to be licensed, hairdressers take way more hours of schooling (at a much higher cost than $116!) to practice their trade. Why on earth should someone who deals with people's finances be subject to any less? Don't you see that in the end, this HELPS our profession? A) It really will weed out some of the incompetent people out there who just hang up a shingle and do taxes in their laundry room and B) It can be a point of pride in that you can demonstrate to your clients that you have at least the most basic level of competence. Honestly, this is long overdue and I applaud the IRS for finally holding tax preparation to some kind of standard.

Posted by: trixiespishak | May 22, 2012 8:38 AM

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I have been a Tax practitioner since 1982, I believe in Government control and more strict laws For those who possess a license and prepare taxes, it takes me back to 1986 87 88 and 89 those Were the years that In California the State did not give any certification, everybody start Preparing Income Taxes, even my Hair styler, who also happen to have a travel agency and a telemarketing Business because there was room to do something more, and now with Technology, anyone without Any knowledge or education can prepare Taxes, let's give room for those who really Understand, have Knowledge and posses the education to do so... Also I applaud the Fingerprint Process, no criminal Should be preparing Income Taxes.

Posted by: Miguelquimbayo | May 18, 2012 4:25 PM

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I have been preparing taxes now for 29 years. I have studied for the EA exam, but then life changes things. Recently I begame vision impaired and need magnifyers and special software to view the screens. The sight problerm did not change my aility to think. however, the IRS now with their teting reuirements may affect my ability to continue. I have quetioned both the IRS and their testing company and have received no replys as to how to handle this testing requirement since the testing company will only allow pencil and paper in the testing area. I would like to continue, but alas I amny have to quite. the I am not sure at this time if the testing company with the aid of the IRS is not in violation of ADA requirements. I will wait another few months and see if I get an answer.

Posted by: cactusdan | May 16, 2012 4:25 PM

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This is all about government control. Nothing more. The Bar Association, AICPA and Enrolled agents, all organized, were able to exempt themselves and their employees and welcomed the regulations. The thousands of other preparers are not organized and have no audible voice. Maybe we should organize to weild enough power to control the human tax preparation resources. What if we just all took a year off (strike)? It would bring the industry to it's knees. Let's see the lawyers, enrolled agents and CPAs handle the volume. The new regulation will now give us the right to prepare tax returns for compensation. I thought I had been doing just that for 33 years. Our right has been taken away by bureaucrats. The IRS will now GIVE us a "special benefit" by allowing second class preparers to continue to earn a living. Many of us have invested a lifetime and capital to build businesses only to see petty bureaucrats and influential exempt groups hijack our industry. I'll be 63 next year and don't want to put up with the BS any longer. I can go on the dole and earn another $14,000 with little effort and more time to live and spend with my wife. I certainly like the idea that we could indeed control the tax preparation industry if we all had the courage to organize and withhold service. It would come from sacrifice but not defeat. What do you say?

Posted by: hisexcellency | May 16, 2012 8:15 AM

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I'm an 11-year employee of H&R Block, preparing about 100 returns a year, not one of Block's largest producers but keeping as busy as I want to in retirement employment, doing some of the more complex returns in my office. As with some of the other respondents here, it is service to loyal clients that keeps me coming back every tax season. The results of the new IRS requirements will include: fewer paid preparers in the future, since the requirements establish barriers to entry; higher preparation fees for customers, many of whom will turn to self-preparation; and no significant reduction in fraudulent preparers. If there is sufficient money to be made preparing fraudulent returns, those fraudulent preparers will figure out a way to satisfy the new requirements. On the other hand, if the new requirements prove costly to many small practitioners, many will undoubtedly drop out of the industry. It's clear that the real issue isn't necessarily how much tax knowledge one has or how well one can perform on a standardized test; rather, it's a question of control, and the testing requirement is a strategy for gaining control over the tax prep industry. IRS obviously has no control over the tax prep industry if it admits that it doesn't even know how many preparers are out there. IRS may claim that they have tax preparers' interests at heart, that testing will enhance their professionalism and elevate paid preparers to the level of CPAs and attorneys. But there is a major difference between those professions and tax preparation: the latter is typically part-time, seasonal, and relatively low-paid. It is virtually impossible to do enough tax returns to make a "living" at fees that customers are willing to pay. Bottom line: as with so much well-intentioned government regulation, the new IRS RTRP requirements will increase costs for small practitioners and their customers, with no comparable benefits for the nation.

Posted by: janejohn | May 15, 2012 10:06 PM

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Two years ago, they put in a requirement regarding electronic filing of returns. I know dozens of preparers who simply refused to do so and mark the returns they do non paid preparer. Don't you think the same thing is going to happen with thousands of people who don't feel they should have to spend hundreds of dollars taking this exam, paying for a practioner';s number and now, for example, have to register with the New York State Department of Finance for another $100 or whatever. Then there is the cost of the CPE credits.

This is simply a scheme to extort more money and will not improve tax preparation one bit. Everybody gets it. I have tried to follow the rules, do the e-filing (which I actually find advantgageous for me and my clients), take a course or two every year and I know what I'm doing. I don't need to be a CPA, I don't need to be an enrolled agent. If somebody comes in with a problem I can't resolve, I send them elsewhere. But this is nonsense. Everybody knows it's nonsensical and simply fund raising. Will it improve the quality of tax prepartion? Not one iota. I understand a suit has been filed to stop this nonsense. Hopefully, it will prove to be a success.

Posted by: JEFFJAGUAR | May 15, 2012 7:18 PM

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While it is true that enrolled agents are very well versed in taxes, I believe they also are involved in non-tax areas relating to accounting services they provide to their clients. Should we require these enrolled agents to take the non-audit parts of the CPA exam when when are working on non-tax areas of accounting?

Posted by: alanaccountant | May 15, 2012 5:28 PM

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I also forgot to ask, If there are 710,000 active PIN's, why is IRS only thinking there would be 340,000 more people taking the exam? If they think there are up to 1.2 million paid preparers, why are they only setting a goal of 340,000? Guess I don't undersatand because I'm not a big outfit like IRS.

Posted by: PaulMStern | May 15, 2012 3:21 PM

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I am an independent who does about 1,500 returns by myself (low income area). I have taken the RTRP exam and passed it. My question still is, so what? This doesn't make me any better than I was last year. The test is not going to stop one single fraudulent preparer(most of them actually know the law pretty well).

Posted by: PaulMStern | May 15, 2012 3:17 PM

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What about the court case of the preparers who filed suit against the IRS and this required testing. Wondering if waiting to take the test and paying out the extra money to see its outcome wouldn't be the smarter thing to do. I am not afraid of taking the test though I hate test taking but would prefer to not pay to take a test I may not need. I have don't income taxes for 28 years and 20 of those was with H&R Block. Each office is different but we never had to test and only had update classes given by our boss, based on a class he had been to. The office now has new owners and I redo more of their work than anyones but a close second is 2 area CPA's. I believe all should have to take the test based on what I see and hear. Just because you sign in at CPE credit classes doesn't mean you learn and can apply. I attend more CPE credit classes than CPA's are required just because I want to know I am up to date. I feel I owe that to my clients. My question is after taking the test and passing will IRS give us the same respect as EA's or CPA's in audit's? I don't see any now!

Posted by: Eldotaxsolutions | May 15, 2012 2:42 PM

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I agree with Pavlock that Enrolled Agents are the ONLY ones that should be exempt. Most attorneys and CPS's have very little knowledge of tax law. If you are a CPA or attorney and do taxes then you should have to pass the EA or RTRP. Just because you represent someone in a murder trial does not mean you know how to do taxes! I have been doing taxes over 30 years, I always have about 30 hours of continuing ed, I have never advertised and should retire but I have such a wonderful base of clients and a lot of them are older that I hate to put them out to the "wolves". I know most people in the accounting and tax field would never agree with me but it should not be difficult to pay the govt. what you owe them. It is time for a total overhaul of our tax system. Our current tax code is broken and we need to start over whether it is the Fair Tax or some other form of flat tax.

Posted by: msbaysalr | May 15, 2012 2:23 PM

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I concur with KATHETAX in that I am a small practice, doing about 30 returns per year. The IRS costs now being imposed make it unprofitable to continue, what with PIN renewal, official CE courses, and now the exam. I have super training from the green block company so I know my taxes, not just hope the computer gets it right. I use the IRS website to keep current every year. And, it's not equitable to waive the test for other paid preparers. They often don't know any more than well trained H&R Block people (not meaning that all Block preparers know what they are doing either). At least this test will weed out some of the incompetent ones. Again, the government is imposing more regulations and ruining business growth.

Posted by: pgraham100 | May 15, 2012 1:59 PM

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I am a small sole practice doing about 100 returns per year part time to supplment other part time income. The cost of these tests, software and mailing will make it a breakeven point for me. I don't advertise and am no looking to increase my work load. Do I want to continue? Only my loyality to my long term clients keeps me going.

Posted by: KATHETAX | May 15, 2012 12:53 PM

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Enrolled Agents are the only ones who should be exempt. This TEST will NOT solve your problems. Most CPA's and Lawyers are not qualifyed to be exempt. This is government interference at the highest level attacking the least powerful,and obtaining dubious results. I am handicapped,do less than 70 returns for family and friends and live in a rural area,so traveling to a distant city borders on the ridiculous.I know this comment falls on deaf ears,but there are many like me..70+ years and keeping up with continuing education every year.

S.Pavlock

Posted by: sundayp | May 15, 2012 12:11 PM

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