by Roger Russell
The Internal Revenue Service is moving toward stiffening regulation of tax preparers, making the enrolled agent exam computer based, and possibly introducing registration requirements to enter the profession.
In mid-September, the agency disclosed plans to beef up the new Office of Professional Responsibility, designed specifically to oversee tax professionals. The office was created in January 2003 to replace the Office of Director of Practice.
But the new organization is much more than a change in name, according to deputy director Steve Whitlock, who joined the office in May.
“Changing the name was more than cosmetic,” he said. “The old organization had been allowed to atrophy over time. Staffing was down, and the office was not resourced appropriately. It was not getting the emphasis that professional responsibility really needs.”
“A big part of the reorganization was to bring that [responsibility] emphasis back, and to focus on setting standards for tax practice for the vast majority of practitioners who want to live within ethical rules. And also to be able to enforce [standards] for that smaller group of people who want to cut close to the edge.”
Surprisingly, the most common reason for discipline of tax preparers is their own personal tax compliance, he observed.
The licensing of tax preparers is an issue that comes up with regularity, according to Whitlock. “It’s an idea that we’ve kicked around,” he said. “The Taxpayer Advocate report in December described a number of the issues surrounding paid preparers and their competence.”
However, he noted, the sheer number of preparers involved, coupled with overlapping state regulation, make any immediate call for licensing premature.
“Some of the other issues we’ve got to deal with are resource questions. We’re having a hard time eating the muffin that we’ve got in front of us, and [licensing would be] a sheet cake that we’d have to eat, as well. So we’re a little concerned about how we go about doing this.”
Another question, observed Whitlock, “is that if someone is not licensed and prepares a return, what do we do with that return? That taxpayer is still trying to submit a return that’s been prepared by somebody who is not within our scheme. We need the return.”
The Office of Professional Responsibility reports directly to the deputy commissioner for services and enforcement, as do the commissioners for the Large and Mid-Size Businesses Division, the Small Business/Self-Employed Division, the Tax Exempt and Government Entities Division, the Wage and Investment Division, and the Criminal Investigation Division.
One of the reasons for bringing all of these officials together in reporting to the deputy commissioner for services and enforcement, said Whitlock, is that “we are setting standards for the practice to have a contribution to make on both the service and the enforcement ends. There needs to be coordination between us and Large and Mid-Sized Business when they have an issue with a practitioner that they’ve been dealing with.”
“We want to get more aggressive in dealing with the problems that our employees have been encountering in dealing with the problem practitioners,” he added.
Whitlock and the director, Brian Downing, are also reaching out to the profession by addressing the IRS tax forums across the country, submitting articles in some of the trade publications, and communicating with all of the professional associations.
“We want to let people know that we’re here, we’re interested in their input, we’re interested in the problems that they’re encountering, and we want to know what they think we should be focusing on,” he said.
The revelations were made at Tax Talk Today, a forum co-sponsored by the IRS, and designed to provide education and information for the tax practitioner.
The possibility of licensing particularly resonated with the tax practitioners on hand.
“If you want to get a haircut, the person who does it needs a license,” said Frank Degan, a Long Island-based enrolled agent. “If you want your car repaired, you go to a licensed auto repair mechanic. But taxpayers share their most intimate information with someone who can open a store front and hang out a shingle.”
Eighty-four percent of practitioners who responded to a poll of Tax Talk Today viewers favored licensing or registration of tax preparers, and of these the majority agreed that the IRS, not the states, should be responsible for the procedure.
“It’s important to distinguish levels of licensure or levels of registration,” said Whitlock. “The proposal in the Taxpayer Advocate’s report was a good idea, because many times you can’t find these practitioners after the fact. Even though the numbers are huge - 600,000 to 1.2 million plus - the first step would be registration as opposed to licensing.”
Bill Parrish, the founder of Kansas City, Mo.-based TaxAdvantage, a national cooperative alliance of accounting and tax professionals, agreed. “Registration would be a far simpler and less intrusive process,” he commented.
Parrish supports a national, rather than state, registration process. “Most preparers do states other than the state they reside in. If we have a state-by-state registration, we’re looking at being registered in 54 jurisdictions to do tax returns, rather than one federal registration.”
Meanwhile, Whitlock revealed that the enrolled agent exam is due for a change. “The Internal Revenue Service is a world-class tax administration agency, but it’s not a world-class test administration agency,” he said.
Among the exam changes being considered are: increased frequency, moving to a computer-based exam, and enhanced relevance to the kinds of issues enrolled agents deal with in representing taxpayers.
“So we’re in the process of working through the procurement bureaucracy to contract out the development and administration of the enrollment examination,” Whitlock said.
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