PRACTICE VS REPRESENT

Below is an extended email “conversation” I recently had with Hal Leahy, EA, a reader of THE WANDERING TAX PRO blog, concerning my objection to exempting CPAs and attorneys from the testing and CPE requirements of the new tax preparer regulation regime.

The issue at hand is the fact that I had been told by IRS Tax Preparation Czar David Williams that attorneys and CPAs could not be required to take the test and maintain specific CPE because there was a “statutory” prohibition.

What it comes down to is – do attorneys and CPAs have a statutory right to “practice” before the IRS or to “represent a person” before the IRS.

Please note that the highlights in Hal’s first email are mine, but the highlights in his subsequent emails are his. 

Robert,

I found the exemption for attorneys and CPAs in the US Code.

First, here is an excerpt from the IRS publication A. REPRESENTATION OF TAXPAYERS BEFORE THE INTERNAL REVENUE SERVICE, http://www.irs.gov/pub/irs-tege/eotopica86.pdf

"Background

Public Law 89-332, 1965-2 C.B. 640, enacted by Congress on November 8, 1965, was designed to do away with agency-established bars for attorneys who appeared before certain federal administrative agencies. The new law was also intended to wipe out agency-established admission requirements for licensed attorneys, and to allow persons to be represented before all federal agencies by counsel of their choice. Additionally, the law eliminated the special enrollment requirements for certified public accountants in representing others in accounting matters before the Service.

Before the enactment of the new law, the rules and regulations governing the right of attorneys to represent others before the Service included a cumbersome admission procedure, which required disclosing whether or not the applicants were persons of good moral character. All applicants desiring admission to practice before the Service were obligated to submit to a background investigation before being enrolled to practice. In addition to having to become familiar with the seventy provisions contained in Circular 230, the applicants were also required to affirm that they would conduct themselves in accordance with the laws, regulations, and rules of the Service.

In liberalizing the rules, Congress felt that there was a presumption that members in good standing of the professions of the law and certified public accounting were of good moral character {ha! ha! ha! – rdf}, and that the surveillance by State bar associations and State associations of public accountants were sufficient to insure the integrity of practice by such persons before the Service."

The following is the state of the law in the US Code today:

“5 USC Sec. 500 Administrative practice; general provisions –

(a)    For the purpose of this section –

(1) "agency" has the meaning given it by section 551 of this title; and

(2) "State" means a State, a territory or possession of the United States including a Commonwealth, or the District of Columbia.

(b) An individual who is a member in good standing of the bar of the highest court of a State may represent a person before an agency on filing with the agency a written declaration that he is currently qualified as provided by this subsection and is authorized to represent the particular person in whose behalf he acts.

(c) An individual who is duly qualified to practice as a certified public accountant in a State may represent a person before the Internal Revenue Service of the Treasury Department on filing with that agency a written declaration that he is currently qualified as provided by this subsection and is authorized to represent the particular person in whose behalf he acts."

Note that attorneys may represent clients before any federal administrative agency but CPAs are only authorized to represent before the IRS. A later section of the US Code removed the carte blanche for attorneys to appear before the Patent Office. 

The above is why the IRS cannot require attorneys or CPAs to be subject to any further licensing or testing, they are already authorized to practice.

Hal Leahy, EA

HL-

Thanks much for the citations.  I understand that this is what Dave Williams was talking about when he referred to a "statutory prohibition".

The question here is - is preparing tax returns considered "representing a person before the IRS"? 

Previously unenrolled preparers like me, who will eventually become RTRPs, will not be allowed to "represent a person before the IRS" - with the minor exception of representing a client whose 1040 I prepared at an audit under a Power of Attorney.  We are not required to take the test and maintain specified CPE in order to represent a client before the IRS - but to be able to prepare a federal income tax return.

Nobody is asking that CPAs and attorneys, or EAs, take on additional requirements to be able to continue to "represent a person before the IRS".  The test and CPE is to verify that the CPA and attorney are competent to prepare federal income tax returns.

I see it as apples and oranges.  What do you say?

RDF

Preparing a tax return is "practice before the IRS". Representation is a different matter. See (bolding added) Circular 230 http://www.irs.gov/pub/irs-pdf/pcir230.pdf, 10.2 Definitions.

"(4) Practice before the Internal Revenue Service comprehends all matters connected with a presentation to the Internal Revenue Service or any of its officers or employees relating to a taxpayer’s rights, privileges, or liabilities under laws or regulations administered by the Internal Revenue Service. Such presentations include, but are not limited to, preparing documents; filing documents; corresponding and communicating with the Internal Revenue Service; rendering written advice with respect to any entity, transaction, plan or arrangement, or other plan or arrangement having a potential for tax avoidance or evasion; and representing a client at conferences, hearings, and meetings."

Practice means "all matters" and includes but is not limited to preparing and filing document with the IRS. That includes tax returns. The term practice is all encompassing and includes preparing returns. That is why the IRS cannot require CPAs or attorneys to take a test, they have unlimited practice rights from the US Code.

Section 10.3 gives unlimited practice rights to attorneys, CPAs and EAs. The same section gives limited practice rights to Enrolled Actuaries, Enrolled Retirement Plan Agents, and RTRPs. This is best seen by how Circular 230 restricts the rights of RTRPs in Section 10.3

"(f) Registered tax return preparers

(2) Practice as a registered tax return preparer is limited to preparing and signing tax returns and claims for refund, and other documents for submission to the Internal Revenue Service. A registered tax return preparer may prepare all or substantially all of a tax return or claim for refund of tax. The Internal Revenue Service will prescribe by forms, instructions, or other appropriate guidance the tax returns and claims for refund that a registered tax return preparer may prepare and sign."

It does not say RTRPs can only prepare tax returns. It states that their practice is limited to that. Therefore "practice" includes but encompasses more then tax prep. The next section restricts the representation rights of RTRPs so "practice" is not limited to just representation.

“(3) A registered tax return preparer may represent taxpayers before revenue agents, customer service representatives, or similar officers and employees of the Internal Revenue Service (including the Taxpayer Advocate Service) during an examination.”

Hal Leahy, EA

HL -

You have said “Representation is a different matter”.  The US Code you had previously quoted gives attorneys and CPAs the statutory right to “represent a person”.  The term “practice” is not used in the Code reference.

Does an attorney and CPA have a statutory right to “practice” or to “represent”?  I see it as a statutory right to “represent”, which is fine with me.  I would not change that.  If the right is to “represent” only I would think the IRS can require testing and CPE for the other aspects of “practice”, such as tax preparation.  Just as the IRS treats RTRPs differently for representing and preparing tax returns.  Am I wrong in my thinking?

Thanks!

RDF

As of this writing I have not heard any more from Hal.  I certainly thank him for providing me with the citations regarding this issue.

So here is my point. 

(1)  Section 500 quoted above is “statute”.  Congress writes “statute.  Circular 230 discusses “practice”.  Circular 230 is regulation.  The IRS writes regulation.

(2)  There is no question that attorneys and CPAs have the statutory right to “represent a person” before the IRS, and additional requirements cannot be placed on this statutory right.

(3)  IRS Regulation describes what “practice before the IRS” means, and determines the requirements that must be met to be able to so “practice”.  They have determined that individuals who want to prepare federal tax returns must pass a test and maintain specific annual CPE. 

(4)  So, while they are statutorily permitted to represent persons before the IRS without additional requirements, if attorneys and CPAs want to prepare federal tax returns they should also pass the same test and maintain the same specific annual CPE.  And they should be given the additional initials RTRP to indicate to the public that they are authorized to prepare 1040s. 

I look forward to hearing from my fellow tax professionals on this issue.  So comment away!

RDF