The New York State Society of CPAs told the Internal Revenue Service that its upcoming exam for non-CPA tax practitioners should include a section in which exam takers are asked to prepare a sample 1040 return.

The suggestion came in a letter in response to a request for comments on the exam from the IRS. The Treasury Department and the IRS are currently in the process of developing a competency examination that tax preparers who are not CPAs, enrolled agents or tax attorneys will be required to take to maintain their registration with the IRS.

“A practical section involving the preparation of a sample return is essential,” wrote Jonathan Horn and Vincent J. Cosenza, the chair and vice chair, respectively, of the NYSSCPA Taxation of Individuals Committee.

The exam taker should complete not only a sample Form 1040, they suggested. The exam should also cover, at a minimum, a variety of tax law areas required to properly complete a 1040. The three-to-four hour test should include a combination of multiple-choice questions, short-answer questions, and at least one essay question that that would “test the applicants’ ability to communicate tax concepts to their clients.”

"It's important to make sure that a tax preparer is competent enough to preparer a return, because in the past, it seems like preparers were basically able to do whatever they wanted to do and also get away with it," said Cosenza.

He and Horn also said the test should include questions on all of the schedules and forms associated with the Form 1040, along with the areas of tax law covered by the instructions to Form 1040, “Treasury Department Circular No. 230,” and Publication 17, “Your Federal Income Tax.” The test should also include a section on professional ethics, they recommended.

The competency examination is part of a larger IRS initiative to enhance the quality of tax preparation, which also includes a proposal to require non-CPA paid tax preparers to register with the IRS to obtain a Preparer Tax Identification Number and take regular continuing professional education courses. All practitioners had to register or re-register their PTINs before preparing any returns this year, although the IRS recently announced that it has identified at least 100,000 preparers who have failed to follow the new PTIN rules (see 100,000 Tax Preparers Didn’t Follow New PTIN Rules). 

The NYSSCPA advised that the IRS place emphasis in its weighting of different parts of the exam on the areas affecting the majority of taxpayers, such as wages, interest, dividends, itemized deductions and self-employment income. The society also suggested that the content of the exam should be regularly adjusted to reflect those areas that the IRS believes are causing the most confusion or creating the greatest potential for abuse.

The NYSSCPA made a number of other recommendations, saying the level of difficulty should be between that of the existing enrolled agent examination and the test given to volunteer preparers. A passing score should be set at 75 percent; and updates to the exam should be made in the fall or winter, when tax forms are typically updated.

The society also recommended that monthly or weekly examination times should be established so as to minimize the strain on testing facilities; and there should be a three-month waiting period to re-take a failed exam.

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