While there may be some truth to the observation that August is a slow news month, the start of World War I in early August of 1914, as well as the deaths of both Elvis and Marilyn in August, qualify as exceptions. And for small to midsized CPA firms, the hearings earlier this week on tax preparer registration can be considered newsworthy, though perhaps slightly less eventful.
The hearings highlighted the issues that most small and midsized accounting firms might have with the proposals. While nobody disagrees with the twin goals of increasing tax compliance and elevating ethical conduct, the issue for many firms will be the fact that the requirements will affect many non-federally authorized tax practitioner staffs at CPA firms who never sign tax returns.
We have issues with the inclusion of non-signing preparers, said AICPA vice president for taxation Ed Karl, who testified at the hearings. It doesnt make sense from a CPA firms perspective. For many firms, the only practical way to ensure compliance with the new regulations will be to register all non-FATP [federally authorized tax preparer] staff who contribute to the preparation of tax returns in a way that is not purely administrative or characterized as simple data entry.
In his comments, he noted that the definition of paid tax return preparer for purposes of the PTIN regulations differs from the definition of tax return preparer under Section 7701 of the Tax Code and its regulations. Under the PTIN regulations, it could encompass most non-FATP, non-signing staff working at CPA firms.
At the hearings, Karl noted that the AICPA has 39,000 member firms with five or fewer CPAs, and of these, about 29,000 are sole practitioners. Assuming for cost estimate purposes that each firm has five non-CPA employees performing non-signing work related to preparation of tax returns, including interns, full-time, part-time or seasonal help, Karl estimated that for the first year of a regulatory regime that would require PTIN registration, testing and continuing education for CPA firm staff, each firm would incur $10,000.
Most of these costs stem from requiring non-FATP employees to pass a test and continuing education requirements, he said.
He noted that many CPA firms have robust internship programs where interns are hired during the busy season or summer sessions between academic years. Given the short-term employment relationship of the intern with the CPA firm, any requirement that the interns take a test or fulfill continuing education will likely result in many fewer interns being hired, he stated. Moreover, any increase in costs will likely be passed on to taxpayers, including small business, who are the primary clients of small to midsized firms.
The AICPA has many courses, as do all state CPA societies, Karl observed. NASBA [National Association of State Boards of Accountancy] approves the providers, and then any course they put out is OK. But the model for the IRS is that they want to approve each course. If an organization puts together a course meeting the NASBA requirement, the CPAs will get credit for the course, but not the non-signing CPAs, because we dont believe the IRS will be able to approve the courses in time.
There are three sets of proposed regulations with a stated time frame beginning September 1, Karl noted, including user fee and Circular 230 regulations as well as the PTIN regulations. The September 1 starting date might change to September 15, but its still an awful lot to accomplish in a short time, he said. Were asking them to slow down and get it right.
In separate testimony on the subject, National Society of Accountants executive vice president John Ams recommended that the database of PTIN holders be electronically available to the public. He also said that tax professionals should be able to list other relevant, financially-related professional credentials in the database along with other information such as years of experience.
Michael Nelson, executive vice president of government relations at the National Association of Enrolled Agents, disagreed with the suggestion that user fees, PTIN fees, as well as fees for testing and continuing education, were excessive. As NAEA has cautioned throughout this process, the agencys objective must be to provide taxpayers with reasonable assurance that the person they are paying to prepare their returns is at least minimally competent to do so, whatever the returns complexity, he said.
So while there may be some differences around the fringes, the proposals are moving forward in one form or another. Stay tuned.
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