The Internal Revenue Service is moving ahead with a voluntary tax preparer education program after legal challenges derailed an earlier mandatory testing and continuing education program.
The IRS said Thursday that guidance will soon be issued outlining the new voluntary program to encourage education and filing season readiness for paid tax return preparers. The program will be in place to help taxpayers during the 2015 filing season. It does not include a testing component, although the IRS hopes to add it in future years.
“Today we’re announcing a new program that will help taxpayers by improving the tax know-how and filing season readiness of paid tax preparers,” said IRS commissioner John Koskinen in a conference call with reporters. “We intend to have this voluntary education program in place by the beginning of the 2015 filing season. This is part of a broader effort the IRS began a few years ago to achieve a minimum level of competency across the federal tax return preparer community. Taxpayers need to be confident that the preparer they hire knows enough about taxes to help them with their federal income tax returns. That’s especially important now because as everybody knows we have a very complex tax code and the majority of taxpayers in this country use the help of a paid tax return preparer to do their taxes every year.”
Koskinen noted that 60 percent of paid tax return preparers in the U.S. operate without regulation or oversight. “I would stress that many of them do a good job,” he said. “There are a number of people who do a terrific job and are competent and well informed, but we have found that others are poorly equipped to assist taxpayers in preparing returns. For that reason, the IRS started a mandatory program of education and testing for unregulated tax return preparers who did not have professional credentials, but we had to suspend that program because the courts ruled that we didn’t have the legal authority to require education and testing so we are launching a voluntary program as a temporary substitute. It’s called the Annual Filing Season Program.”
The Annual Filing Season Program will allow unenrolled return preparers to obtain a record of completion when they voluntarily complete a required amount of continuing education (CE), including a course in basic tax filing issues and updates, ethics, and other federal tax law courses.
Tax return preparers who elect to participate in the program and receive a record of completion from the IRS will be included in a database on IRS.gov that will be available by January 2015 to help taxpayers determine return preparer qualifications.
The database will also contain information about practitioners with recognized credentials and higher levels of qualification and practice rights. These include attorneys, CPAs, enrolled agents, enrolled retirement plan agents (ERPAs) and enrolled actuaries who are registered with the IRS.
“It’s also important to note this program is not to replace the important tax work done by certified public accountants, enrolled agents and attorneys,” Koskinen said. “Tax professionals with recognized credentials will be publicly listed on IRS.gov, and we plan to help inform taxpayers about the professional options available.”
The American Institute of CPAs has complained to Koskinen about plans for a voluntary certification program, calling it unlawful in a letter sent this week, but Koskinen insisted that the IRS’s legal counsel has assured him the new education program is legal (see AICPA Says IRS Voluntary Tax Preparer Certification Program Is Unlawful).
“We’ve had several conversations over a long period of time with the AICPA both about the mandatory program when we rolled it out as well as the voluntary program,” he said. “This is the first time they have raised that issue, but I got the letter. We take those kinds of questions very seriously. Our legal Office of Chief Counsel reviewed the matter very carefully and reviewed it with Treasury Counsel and we’re comfortable that we have the legal authority to proceed.”
Anyone who prepares all, or substantially all, of any federal tax return or refund claim for compensation is required to obtain a preparer tax identification number (PTIN). The pending guidance will also explain that tax return preparers with a valid PTIN who do not obtain a record of completion as part of the Annual Filing Season Program, or are not an attorney, CPA, enrolled agent, ERPA, or enrolled actuary, may still prepare tax returns, but will not be included in the public directory.
In 2011, the Treasury Department and the IRS issued regulations that mandated testing and CE for paid tax return preparers and created a Registered Tax Return Preparer credential. The RTRP designation was for preparers with valid PTINs, who passed an IRS competency test and completed 15 hours of CE.
Earlier this year, the Court of Appeals for the D.C. Circuit upheld the lower court’s determination that the IRS regulations from 2011 mandating competency testing and CE for paid tax return preparers were invalid. The IRS continues to believe regulation of paid tax return preparers is important for the proper functioning of the U.S. tax system. To that end, the Administration’s fiscal year 2015 budget includes a proposal to explicitly authorize the IRS to regulate all paid tax return preparers.
Prior to the 2013 court decision, over 62,000 return preparers passed an IRS-administered competency test and completed the requirements to become Registered Tax Return Preparers.
The Annual Filing Season Program will exempt RTPRs and others who have successfully completed certain recognized national or state tests from the filing season refresher course that will be required for other participants.
The Annual Filing Season Program will be an interim step to help taxpayers and encourage education for unenrolled tax return preparers. The IRS will assess the feasibility of administering a uniform voluntary examination in future years in order to ensure basic return preparer competency.
Annual Filing Season Program Record of Completion Requirements
In general, non-exempt return preparers with a valid PTIN for the program year will need to complete 18 hours of CE annually from IRS-approved CE providers to obtain an IRS record of completion. The hours will need to include:
6 hours of federal tax filing season refresher course (with a required comprehension test at completion)
10 hours of federal tax law topics
2 hours of ethics
For the first year, a transition rule will apply to prorate the required hours. For a return preparer to obtain a record of completion for the 2015 filing season, a total of 11 hours will need to be earned in 2014, including the six-hour refresher course, three hours of other federal tax law topics, and two hours of ethics.
Accounting Today asked about whether people who already passed the RTRP test would be grandfathered under the new program. “For purposes of the Annual Filing Season Program, there are a few exemptions, and we are exempting those folks who have already tested in some recognized capacity at the national and state level,” replied Carol Campbell, director of the IRS’s Return Preparer Office. “Those folks who took the Registered Tax Return Preparer program test would be exempted from the filing season refresher course that’s a part of this continuing education program. They would still have to have continuing education, but it’s the same continuing education that they agreed to complete as part of the Registered Tax Return Preparer program. The same 15 hours in the differing buckets for that program would apply to them and not the filing season refresher course.”
Once the official guidance is issued, IRS-approved CE providers will begin to offer qualifying federal tax filing season refresher courses. A list of all IRS-approved CE providers is available and includes a new column to indicate which providers are planning to offer the qualifying courses. The list is updated daily. For 2015, qualifying courses will be offered through Dec. 31, 2014.
Prometric’s contract with the IRS for administering the RTRP exam has lapsed. However, the continuing education providers who have already been approved for the RTRP program will still be able to offer courses as well as testing on those courses.
“What we are offering is a continuing education program,” said Campbell. “One of the courses is strictly related to filing season so tax return preparers know some of the common filing issues, the common errors that preparers make and that they get updates on what’s new with the tax law. As a part of requirement for completing that course they will also have to take a comprehension test to figure out how much they actually learned from the course that they took. But courses will be offered by IRS-approved continuing education providers, so it won’t be a testing service like Prometric. We contracted with Prometric to offer the Registered Tax Return Preparer test. This is being done through the continuing education community, the approved IRS CE providers. Those folks who were approved under the old program who want to come in and make this offering. We’ll take new people in the program. They have differing requirements, depending on whether you had approved status before, or if you are new to the program, you have some more stringent requirements that you have to meet before you can be approved. But anyone who is interested in offering not just this course, but any continuing education course, we have procedures out there for those folks to come in and get approved.”
The IRS will begin issuing records of completion to those who have met the requirements in mid-October 2014 after the 2015 PTIN renewal season starts.
Consent to Circular 230 Restrictions
As a prerequisite to receiving a record of completion, an individual will be required to consent to the duties and restrictions relating to practice before the IRS in subpart B and section 10.51 of Treasury Department Circular No. 230.
Modification to Limited Practice Permissions
The pending guidance will also announce that effective for tax returns and claims for refunds prepared or signed after December 31, 2015, only unenrolled tax return preparers who have a record of completion under the Annual Filing Season Program for the calendar year of preparation and the calendar year of representation will be permitted to represent taxpayers before the IRS during an examination of a return that they signed or prepared.
Attorneys, CPAs, and enrolled agents will continue to have unlimited representation rights and can represent clients before any office of the IRS.
An H&R Block official said she supports the new voluntary preparer program. “Today, the commissioner of the IRS announced plans to implement a voluntary certification process for the nation’s tax preparation industry for tax season 2015,” said Kathy Pickering, executive director of the Tax Institute at H&R Block. “H&R Block has long supported efforts to elevate the standards in the tax preparation industry in order to provide better service and protections for all consumers. Many industries, most with much less access to one’s personal financial history and other private information, require minimum competency standards. H&R Block supports Congress enacting mandatory standards for professional tax return preparers. Until Congress is able to act, however, a voluntary certification program is essential for protecting consumers.”
She noted that last week H&R Block president and CEO Bill Cobb provided his support directly with a letter to Commissioner Koskinen. Pickering pointed out that the National Taxpayer Advocate reported an estimated 42 million consumers used a tax return preparer who was neither credentialed nor subject to state oversight and minimum standards to complete their 2011 tax returns. That represents approximately 54 percent of all returns prepared by someone other than the taxpayer.
The IRS plans to get the word out to taxpayers about the new program and how it can help them at tax time next year. “As part of our efforts, we will be rolling out a public awareness campaign for the 2015 tax season to help educate everyone about the value that competent, qualified return preparers provide,” said Koskinen. “This will include highlighting the importance of either being a credentialed preparer like a CPA, enrolled agent or attorney, or participating in our program.”
He said the IRS would also assess the feasibility of administering a uniform voluntary examination in future years in order to ensure basic tax return preparer competency.
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