What the IRS Should Do About the RTRP
IMGCAP(1)]So here’s the story:
In 2011 the Internal Revenue Service instituted a mandatory registration and licensing program for all tax return preparers. All preparers were required to register with the IRS and receive a Preparer Tax Identification Number by the end of 2011, and preparers who were not an Enrolled Agent, Certified Public Accountant, or attorney, or a “supervised” employee thereof, were required to maintain a minimum of 15 hours of continuing professional education in federal taxation -- which would include two hours of ethics and three hours of tax updates -- provided by IRS-approved sources each year beginning with 2012, and become a Registered Tax Return Preparer by taking a competency test by the end of 2013.
In a classic David-versus-Goliath move, three independent tax return preparers, who felt that the cost of the IRS regulation regime, especially the annual CPE requirement, was “prohibitive” for their small practices, joined with the Institute for Justice to challenge the licensing program in federal court and won. In January 2013, Judge James Boasberg of the U.S. District Court for the District of Columbia ruled for the plaintiffs in Loving et al v IRS, stating that the IRS did not have the legal authority to regulate tax return preparers. The RTRP required licensing program was shut down.
The IRS promised to appeal the decision and asked the court to issue a stay of injunction to allow the service to continue the program pending the outcome its appeal. The judge said “No.” While the IRS can -- and does -- still require all tax return preparers to register and receive a PTIN, it can no longer require testing and mandatory CPE for non-EA, non-CPA and non-JD preparers.
In denying the request for a stay of injunction, the judge said that the IRS does not have to shut down all of its testing and continuing education centers, but can no longer require tax return preparers to pay testing or continuing education fees or to complete any testing or continuing education. So the RTRP program can continue, but only on a voluntary basis.
The recent IRS scandal, which will result in a shakeup of leadership at the service, has, in my opinion, pretty much put the final nails in the coffin of the mandatory RTRP program. While the service will continue with its appeal of the Loving decision, its main focus going forward must be on regaining public, and congressional, confidence, and it will not have the time or resources to devote to the fight. And I strongly doubt that at this point Congress will vote to give the IRS the authority to require the licensing of tax return preparers.
But the Internal Revenue Service had invested a lot of time and money in its RTRP program. And before the program was shut down, the service forced tens of thousands of tax preparers to waste time and money to sit for and pass the competency test and be granted the currently useless designation of RTRP.
Here is what the Internal Revenue Service should do.
The IRS should continue the RTRP designation as a voluntary program, as the court has suggested. PTIN-holders, including CPAs and attorneys, should be able elect to receive the certification/designation of Registered Tax Return Preparer by meeting the requirements, just as they have been able to choose to be certified/designated as an Enrolled Agent.
Actually, the RTRP designation should be part of a voluntary two-tiered certification program that includes the current Enrolled Agent designation.
A preparer, again including CPAs and attorneys, would first apply for and be granted the RTRP designation by way of a test that is limited to tax preparation (more involved than the original basic open-book basic test). Minimum annual CPE in federal tax topics would be required once the RTRP designation was granted. Those who had been designated an RTRP under the former regulation regime would be “grandfathered” into the new voluntary program, so the time and money they spent under the former mandatory RTRP program would not have been wasted.
After a year, an RTRP could elect to take a second test, with emphasis on taxpayer representation issues and other advanced topics, to become an ETRP (Enrolled Tax Return Preparer -- a new title for the current Enrolled Agent) and be permitted to “practice” before the IRS.
The voluntary RTRP program would allow competent “previously unenrolled” preparers the respect and acknowledgement that they deserve, based on their knowledge and experience, but do not currently receive. Allowing CPAs and attorneys who prepare tax returns to become an RTRP under the new voluntary program would provide these professionals with a credential in 1040 preparation, and therefore provide recognition of their competence and currency in preparing individual income tax returns. CPAs and attorneys who become RTRPs would have no need to go on to become an ETRP, as they are already permitted to “practice” before the IRS.
If the IRS does not do this, then I would call for the independent industry-based tax preparer designation program I had proposed in an earlier article, “It’s Time for Independent Certification for Tax Preparers.”
Robert D. Flach has been a tax preparer since 1972, and blogs as The Wandering Tax Pro, as well as writing on taxes for The Street.com and MainStreet.com.