Congress Presses IRS to Ease Tax Preparer Regulations

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Thirty-one members of the House have signed a letter to Treasury Secretary Timothy F. Geithner urging changes in the Internal Revenue Service’s proposed plan to regulate paid income tax return preparers. 

House lawmakers on both sides of the aisle, including nine members of the tax-writing House Ways and Means Committee, have asked the Treasury Department and the IRS to exempt non-signing tax preparers at CPA firms — employees of CPA firms who prepare returns but do not sign them — from onerous registration requirements. Lawmakers are further asking for a delay and further study of an IRS proposal to create a nationwide examination of tax preparers. 

The group, led by Brad Sherman, D-Calif., and Michael Conaway, R- Texas, said the IRS should modify its proposal. “We believe that the IRS has neither demonstrated the need for extending the non-signing preparer requirements to CPA firms nor that its proposed testing program merits shifting IRS resources away from other mission-critical programs,” they wrote.  “We believe that any testing program should be deferred until the IRS has performed an adequate study to determine the level of return preparation problems caused by a lack of preparer competence and whether testing would have a meaningful effect on reducing those problems.”

The letter argues that requiring IRS registration of non-signing preparers who work for CPA firms is unnecessary because state boards of accountancy already regulate CPA firms and individual CPAs, and because the IRS wou;d be able to monitor the quality of the CPA firms’ work through the preparer tax identification numbers of the CPAs who sign the tax returns.

The PTIN numbers will be assigned by the IRS when the CPAs register and will have to be included on all the tax returns they sign. The IRS has already excluded CPAs from the proposal’s examination and continuing professional education requirements because they are regulated by the state accountancy boards and Treasury Circular 230, the rules governing practice before the IRS, so there is “strong justification for not expanding the PTIN requirement beyond signing preparers in CPA firms with no adverse effect to the public.” 

In addition, they argue, extending PTIN registration to non-signing preparers in CPA firms would add a burden to the firms’ tax preparation work with the result of increased costs that would then be billed to clients.

The lawmakers contend that implementing a requirement for an IRS examination of tax return preparers other than attorneys, CPAs and enrolled agents should not occur until the IRS has demonstrated the need for such testing. The proposed examinations would burden IRS and return preparer resources and result in increased tax preparation costs for which there is no demonstrated need.

“We are also unconvinced that such testing will be effective in eliminating return preparation problems encountered by the IRS,” they wrote.

The PTIN regime would give the IRS the capability to track and discipline incompetent preparers, and that process alone would raise the competency of preparers to an acceptable level.

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