New York (June 29, 2004) -- Planners who list tax return preparation as one of the services they provide to clients might want to follow a bill that has been slowly snaking its way through Congress over the last year.
In May, the Senate passed its version of H.R. 1528, the Tax Administration and Good Government bill. The House bill, sponsored by Ohio Republican Rob Portman, was passed one year ago.
Yet even with approval from both houses, one should remember that nothing in Congress is ever a sure thing. Industry followers are waiting for the conference committee meeting date. At this point the bill is unlikely to get looked at before the Fourth of July recess, as its backers originally hoped.
The bill is mostly technical in nature, stemming from requests by the Internal Revenue Service and the Treasury Department. But one section proposes greater regulation of tax return preparers. It suggests that anyone who prepares five or more returns a year – and is not governed by IRS Circular 230 – should be required to register with the IRS by taking a qualifying exam and subsequent annual re-qualifying exams. (Attorneys, enrolled agents and CPAs are regulated by Circular 230.)
About 17 percent of the Financial Planning Association’s 28,000 members prepare tax returns for clients.
"It really went after refund anticipation lenders," said Paul Cinquemani, director of member relations and business development for the National Association of Tax Professionals, in Appleton, Wis. "This all seems to stem from the scandals that have occurred in the accounting industry over the last five to 10 years."
The bill raises plenty of questions, such as who will monitor the annual registration, examinations and annual renewal exams.
The NATP says that, for the most part, its 17,000 members support the bill and want the competency testing to separate themselves from fraudulent individuals. But they do not like the continuous renewal process that might be required.
"We felt that was onerous. It puts un-enrolled people in the position of wondering," Cinquemani said. In particular, NATP members are concerned about the level of difficulty of the original exam and the renewal exams. The association has suggested annual continuing education requirements that are similar to those required for other professional designations. (About 2 percent of its members are also CFP practitioners.)
Other sources say that the proposals are redundant and that the IRS already has the enforcement tools needed to weed out bad preparers. And with its tight budget, say opponents, the IRS doesn’t need more responsibilities.
"I remember a long time ago some discussion whether the IRS should license tax preparers. The response was really the IRS doesn’t want to be in the licensing business, and they don’t want to be giving a stamp of approval," said Alan Weiner, a partner and CPA at Holtz Rubenstein & Co. LLP, in Melville, N.Y.
State legislatures are also looking to keep a closer eye on tax preparers.
In New York, S.302D, sponsored by Sen. Kenneth LaValle, a Republican from Port Jefferson, N.Y., was first introduced last year. The bill, which was passed by the Senate this year, would "expand and enhance the oversight agency to hold licensed accountants and the firms they work for accountable for incompetence and/or professional misconduct." Included in the text of the bill is tighter regulation for tax preparation and tax advisory services offered by CPAs and public accountants. Its accompanying House bill, A08555, sponsored by Democrat Assemblyman Rob Canestrari, has not been passed.
California and Oregon have already passed and implemented measures similar to New York’s proposal. Several counties within New York State also have proposed measures for stricter regulation of tax preparation.
The American Institute of CPAs is reviewing its stance on the various bills. A spokesman said that the organization hopes to have an official response by early July.
-- Laurie Kulikowski, Financial-Planning.com
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