Opinions run the gamut on more strictly controlling tax practitioners
The movement to register tax return preparers is picking up steam as representatives of various professional, government and taxpayer groups are weighing in on the issue.
Internal Revenue Service commissioner Doug Shulman, in recently announcing a series of upcoming registration-related forums, said that he would propose a set of recommendations to help the IRS better leverage the tax return preparer community with the goals of increasing taxpayer compliance and ensuring uniform and high ethical standards of conduct for tax preparers.
Shulman said that he would submit recommendations to the Treasury Secretary and the president by the end of the year.
"Tax return preparers help Americans with one of their biggest financial transactions each year," he said. "We must ensure that all preparers are ethical, provide good service and are qualified. At the end of the day, tax preparers and the associated industry must be part of our overall game plan to strengthen the integrity of the tax system."
Two panels at a recent forum concluded that something needs to be done and offered a wide range of suggestions.
The consumer panel included representatives from the National Community Tax Coalition, the Center on Budget and Policy Priorities, the American Association of Retired Persons, the Consumer Federation of America, and the Low Income Clinic. The professional panel included the National Association of Enrolled Agents, the American Institute of CPAs, the American Bar Association, the National Society of Accountants, and the National Association of Tax Professionals.
Both panels supported greater oversight over return preparers, albeit with a wide range of solutions. Options ranged from simply enforcing existing preparer standards and extending them to include IRS Office of Professional Responsibility oversight over unlicensed return preparers, to full licensing, testing, registration and continuing education standards.
INSTITUTE SAYS NAY
The American Institute of CPAs believes that the IRS already has sufficient authority to regulate federal tax return preparers without the need for an additional legislative grant of authority, according to Mike Dolan, chair of the IRS Practice and Procedure Committee of the AICPA and KPMG's national director of IRS policies and dispute resolution.
"The IRS has the ability to regulate tax preparers through the penalty process under current law," he said. "The Internal Revenue Code permits the service to assess penalties for the understatement of a taxpayer's liability (Section 6694). We believe the 2007 and 2008 modifications to Section 6694, including the marked increase in the dollar amount of the penalty from $250 to $1,000 or more, should provide the service with the ability to have a significant impact on incompetent preparers. Other penalties include those for the failure to furnish a copy or to sign the return (Section 6695); the promotion of abusive tax shelters and gross valuation overstatements (Section 6700); the aiding and abetting of the understatement of tax liability (Section 6701); and action to enjoin certain conduct by preparers or promoters (Sections 7407 and 7408)."
The government also has the authority to regulate CPAs, attorneys and enrolled agents who practice before the service through the OPR, Dolan noted: "OPR has the authority to identify standards of performance, and discipline these Circular 230 practitioners through disbarment and other sanctions. We recommend that OPR's oversight responsibilities be extended to include unlicensed tax return preparers by providing all preparers, and all other tax practitioners, with one unique identification number for use in all interactions."
Dolan advised against any result that would impose duplicative regulatory processes on CPAs, attorneys and enrolled agents who are already subject to Circular 230.
"We clearly support the whole process," said Benson Goldstein, senior manager of tax at the AICPA. "We support whatever can be done to increase the ethics and competence of people preparing returns, but it should be done in a way that the IRS can enforce and effectively get a handle on the problem."
Frank Degen, chair of the Government Relations Committee of the National Association of Enrolled Agents, agreed that any program should be built on the existing regulatory framework under the OPR.
"Why construct a parallel regulatory framework and enforcement entity for different groups of paid preparers?" he asked. "Centralization would create a variety of benefits: one ethics code; coordinated exams that would allow for advancement within the profession; and standardized continuing education requirements."
Degen said that although the general consensus was that something needed to be done, it should go beyond mere registration. "It's troubling that some simply want to issue a registration number," he said. "If that's what happens, it won't be much of an improvement. Some people will be misled into thinking the registration number is more than it is - that it implies some sort of recognition and approval by the IRS."
Degen noted that the hearings consisted only of representatives from recognized groups. "We also need to hear from unenrolled people," he said. "There are a lot of preparers who are unenrolled who are competent. No one is trying to put them out of business. What we're trying to do is get a system to catch the bad ones."
ADMINISTRATE, DON'T LEGISLATE
Similarly, the American Bar Association Section of Taxation encouraged an administrative approach over a legislative one.
Legislation has been introduced in Congress that would mandate these changes, noted Armando Gomez, vice chair of government relations. "However, we believe that current law provides the service with ample tools to enforce a registration program. For example, Section 6695(c) of the code authorizes the service to impose civil penalties for the failure of a preparer to include their identifying number on each return they prepare. Before expanding the scope of that or other penalties, the service should take steps to ensure that current law is being enforced appropriately."
James Nolen, president of the National Society of Accountants, believes that recommendations coming out of the hearings will include legislation to require licensing. "Some sort of exam on the front end, coupled with annual CPE requirements and significant penalties for non-registrants, should be mandatory," he said. "The time has long since arrived that we need to do something to ensure the professional liability of people who are preparing other peoples' returns for compensation."
"We're flexible on who oversees the whole process of getting everyone registered and tested and the ongoing process of monitoring CPE and new people entering the field," he said. "It could either be OPR or a new entity."
Larry Gray, government affairs liaison with the National Association of Tax Professionals, noted that any exam is simply a demonstration that someone has acquired the minimum knowledge to enter the field, and states nothing about their morality or ethics. "A successful program will first focus on getting its arms around all the preparers before any of them leave or go underground," he said. "NATP therefore recommends that a simple registration process be initiated first. As an incentive or encouragement to get preparers to register, those that come forward or who belong to a professional association could be granted a waiver period wherein they would not have to take a test," he said.
Under a plan submitted by Padgett Business Services, preparers would be required to have an identification number to be used on paid returns. Practitioners other than attorneys, CPAs and enrolled agents would be required to provide each client with a disclaimer, stating that while they are registered with the IRS to prepare returns, they are not licensed and have not taken a competency exam approved by the Department of the Treasury. Registered preparers would then be allowed to obtain a tax return preparer's license by being an attorney, CPA or enrolled agent, or by passing an exam and a basic background check.
To eliminate the practice of unregistered preparers preparing a return without signing it, tax returns would include a second signature line requiring the taxpayer to swear under penalty of perjury that they did not use a paid preparer and prepared their own tax return. Both the preparer and the taxpayer would be subject to additional penalties if they contributed to the taxpayer signing this line incorrectly.
"We shouldn't ignore how a preparer gets into the system, but what's more important is what happens after that," said Roger Harris, chief executive of Padgett. "Ultimately, the system will succeed or fail based on how well we enforce the system and educate taxpayers. Otherwise, we'll just be creating higher standards for people who are probably doing it right already."
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