The first set of proposed regulations on preparer registration requirements has generated a host of comments from several of the major tax professional organizations.
The American Institute of CPAs commented on the lack of a clear understanding of who constitutes a non-signing preparer. "There's no bright-line test. It depends on who meets the definition of 'preparer,'" said Ed Karl, director of taxation at the institute.
The proposed regulations, which are part of the initiative announced by the Internal Revenue Service in July 2009, require tax preparers to use a preparer tax identification number, or PTIN, for any returns filed or claims for a refund submitted after Dec. 31, 2010. Although CPAs, attorneys and enrolled agents are exempt from the testing and CPE requirements, they must still register and obtain a PTIN. Those who already have a PTIN will be required to register and have their PTIN revalidated and re-assigned.
The AICPA recommended that the proposed regulations specify that the PTIN, testing and CPE requirements not apply to non-signing preparer-employees of CPA firms, or alternatively, not apply to non-signing preparers working under the supervision of a CPA, attorney or enrolled agent.
"Assigning a PTIN will allow the service to track signing preparers who are not competent," said the institute. "We believe that if there are non-signing preparers working for a signing preparer with a PTIN, the service will be able to find the incompetent preparers by contacting the signing preparer who will have the records to determine who may have prepared substantially all of the tax return. There is no need to require all of the preparers working for the signing preparer to also have PTINs."
CPA firms could be especially impacted by this requirement, Karl pointed out. "Most CPA firms have a recent graduate with an accounting degree, who has sat for and passed the CPA Exam," he said. "But because every state has an experience requirement of at least one year, that person may not be licensed. If he or she meets the definition of a non-signing preparer, they would have to be registered, get a PTIN and be compliant with the CPE and testing requirements."
MORE HANDS-ON EXPERIENCE
A solution offered by Roger Harris, president of Padgett Business Services, would include an additional example in the regs to discuss training and apprenticeship situations.
"After undergoing a thorough course in tax preparation, we have found that the best way to train an individual is to give them hands-on experience during tax filing season supervised by more experienced preparers," he said. "Under our suggested example, the taxpayer would be made aware that the person interviewing them would be under the supervision of a registered tax return preparer. The individuals would interact directly with taxpayers, effectively 'interviewing' them, but any exercise of discretion or independent judgment on the trainee's part as to the client's underlying tax position would be reviewed by the registered tax preparer and the return would be signed by the supervising registered tax preparer."
"The final regulations could provide time limits on such apprenticeships and require notice to the IRS before the tax filing season," he continued. "While some might worry about creating a 'loophole,' this concept is similar to the concept of teaching hospitals for young doctors."
Volunteer tax return preparers and those who engage in "free" tax return preparation in conjunction with other services should be covered by the requirements, according to the National Society of Accountants
Individuals who would be excluded from the PTIN requirement under the proposed regulation would include Volunteer Income Tax Assistance preparers, Tax Counseling for the Elderly preparers, and Low-Income Taxpayer Clinic preparers.
The most recent Treasury Inspector General for Tax Administration research found that 41 percent of returns prepared at volunteer program sites in 2009 were incorrect, the NSA noted. "Applying the lowest audited rate error - 31 percent in 2008- tells us that more than 1 million of these returns were incorrectly prepared."
"How can you get 31 percent of these returns wrong?" asked NSA executive vice president John Ams. "If a paid preparer got 31 percent wrong, he would be put out of business pretty quickly. It's just common sense to know who these people are. It could be a preparer is making one simple mistake on each return that could be easily corrected. It's important to know who these people are so we can do that."
Moreover, he noted, the rules regarding disclosure of taxpayer information to third parties are increasingly important as the government attempts to crack down on identity theft. "We don't know if volunteers are aware of the rules if there's no way of communicating with them."
WHO'S NOT COVERED?
Under the wording of the proposed regs, preparers that offer so-called "free" tax return preparation services in conjunction with other commercial services would not be covered, according to the NSA.
"Clearly, the preparation of the tax return is incident to a commercial endeavor whether or not any payment is made, designated or attributed to tax preparation services," it stated. "A taxpayer should be confident that any individual holding himself out to the public as a tax return preparer is competent to do so and is subject to the same professional standards and requirements as any other tax return preparer."
"If you test drive a car or get your hair styled and get free tax preparation along with it, we all know it's not really free, but those who do it are still holding themselves out to the public as being competent," said the NSA's Ams.
Both the National Association of Enrolled Agents and the NSA put forth comments on the issue of members who live and work abroad and are not U.S. citizens and have no Social Security number. Both organizations urged that a mechanism be offered to register foreign preparers.
"As a group, they and others like them prepare a significant number of U.S. tax returns," stated the NSA.
There are over 200 U.S. tax accountants practicing in London alone, and thousands more all over the world, the NAEA noted. "Further, some 200,000 U.S. citizens in the United Kingdom alone require the services of specialized tax preparers who understand the intricacies of, for instance, the U.S./U.K. Income Tax Treaty, the U.S./U.K. Inheritance Tax Treaty and the U.S./U.K. Totalization Agreements."
Padgett's Harris urged that the process of registering preparers not take priority over the need for preparers. "If we're too rigorous about who gets authorized, the whole supply and demand equation can get out of whack," he said. "Taxpayers still have to file each year, and a large percentage need help, so we have to be careful that we don't twist the rules in such a way that would limit the availability of affordable preparation. All these tax returns still have to be prepared and filed when this is over."
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