Friday, December 28, 2012


Russ Fox of TAXABLE TALK responded to my “A Twitter Conversation” post here at TTP with “Sometimes the Cynics Are Right”.

I don’t expect grandfathering, I don’t expect an extension, and while I don’t think the IRS’ goal is a reduction in competition, I definitely think that’s an unstated goal of the regulations. Jason then noted that there would be fewer preparers for the IRS to regulate and less competition for H&R Block.

For Robert, the best hope is the lawsuit that was filed by the Institute for Justice and three tax preparers challenging the regulations. The IRS’ institutional mentality is for more regulations, not less. The RTRP program allows for more bureaucrats and a larger budget for the IRS–goals for any Washington government middle manager. The IRS won’t back down unless a court tells them to. I think the lawsuit has a decent chance: There’s nothing in the law stating that the IRS has the right to regulate every tax professional prior to preparing a return. (The IRS absolutely has the right under the law to seek injunctions against tax professionals who are committing fraud, etc. But that’s after a preparer prepares returns, not before he does so.)

I’m cynical about government. My cynicism is a result of seeing how government at all levels has acted since 1983. I remember in debate that anything we proposed would be, “a self-perpetuating program….” Somehow, the idea of a government for the people of a limited size and scope has been lost. Expecting the IRS to act any differently than anybody else in Washington would be shocking.”

I admit that I am also cynical about government – or rather politicians and bureaucrats.  This comes from growing up in Hudson County NJ – the “poster child” for political corruption in perhaps the most politically corrupt state in the union.  My opinions about what the IRS will do were based on common sense.  And one should never credit politicians or bureaucrats with possessing common sense.

I do not support the lawsuit Russ mentions because I am not against the concept of registering and licensing tax return preparers.  My issue is with the initial competency test.  I would, of course, prefer, as I have suggested, that an independent industry-based organization, similar to the AICPA (an American Institute of Registered Tax Return Preparers), administer the RTRP designation.  But I also prefer that the IRS “regulate” preparers as it now does to having regulation legislated by the idiots in Congress (who, as we all know, can fuck up a High Mass).

While I still pray that the IRS discovers some common sense and initiates grandfathering, and will continue to speak out for this, I am not very hopeful.  I expect that Jason Dinsesn is right and there will be some kind of extension.  I truly believe that the IRS will not force possibly 200,000 tax preparers out of business. 

At this point I plan to take the test after the upcoming tax filing season ends – probably in May or June.  By then we should have a new IRS Commissioner in place, and we will know if he will continue the Service’s “hard line”.

Enrolled Agent David Fazio “tweeted” the following in response to my Twitter call for comments on this issue -

I'm against grandfathering but if I made the rules you would be one of my exceptions :).”

I asked him why, and he replied via a comment to my initial post –

I have to give a "'to grandfathering. In my past 10+ years being out on my own, preparers like Robert are the exception and not the rule. The test has been designed to establish MINIMUM competency. That includes things like filing status, exemptions, common Sch A deductions, credits and what is considered taxable income. It also touches on Schedules C, D and E.

I've spent too much time (and made too much money) correcting unlicensed paid preparer errors. Some are basic incompetence (one preparer who recently went out of business filed every single taxpayer as HOH) and others are outright fraudulent ($25,000 in Form 2106 expenses) for a department manager working at Wal-Mart. Sometimes I catch these when the client is new to me, others I get the client too late and the IRS is already auditing them through the mail.

I loathe driving through the city and seeing signs that say ’Travel Agency - Tax Preparation’, ‘Convenience Store - Tax Preparation’ and even ‘Piercings/Tats - Tax Preparation’. I've had friends "mystery shop" these places and most are using online free-file methods or TurboTax. Every return they prepared contained errors in law, despite being given a set of facts and circumstances that clearly indicated how things should have been reported.

They are a blight on our industry and cheapen the product we sell. That product, as you know, is knowledge. A tax return may just be 5 sheets of paper but it is the knowledge of how to work through the intricacies of the tax code that justify paying someone to prepare your tax returns.

So as I tweeted, if I had a choice I'd except YOU my friend. Because through your thoughtful tweets and blog I know you have your finger on the pulse of all things tax related. But for the thousands of back room preparers, they need to know (and prove to the IRS through testing for minimum competency) that just because someone has a kid, they need to meet certain criteria to legally claim the child as a dependent and collect the Earned Income Tax Credit. They need to know that Schedule C requires you to report ALL of S/E income, not just what you get a 1099-MISC for. They need to know that you can't net your gambling losses against your gambling winnings on Line 21. If these folks can't pass a basic competency test, then they need to find another vocation.”

I thank David for the kind words and for his willingness to grant me a special dispensation, and I agree with everything he has said about unscrupulous and incompetent tax preparers.  I remember walking on Central Avenue in my former home town of Jersey City years ago and seeing a sign in the window of a barber shop that read “Tax Returns Prepared Here”.  And I agree that many of these “unique” tax preparation locations merely buy a “box” and do not have any real tax training.

But how many of these “unique” preparers have actually registered with the IRS and received a PTIN?  And if they have, how many of them have actually taken any CPE in taxation at any time?

And I doubt that the preparers whose errors David, and I as well, have discovered over the years took more than at most a token number of CPE over the years.

My grandfathering recommendation is based on the grandfathered preparer documenting substantial CPE in the five years prior to registering with the IRS.

While I have been against the initial competency test in general, David does make a good case for its requirement for relatively new preparers.  I am willing to accept the testing requirement, but I also continue to strongly support some kind of grandfathering.

My next question to David is if he thinks the IRS will force potentially 200,000 tax preparers out of business, or will they extend the deadline.

Additional comments and responding posts from tax pros and tax bloggers are welcome and solicited.


Wednesday, December 26, 2012


David Williams, former IRS return preparer czar, hit the nail on the head when he told the assembled NATP membership at the Austin, Texas national conference back in 2010 that, as a result of the new requirements, there was going to be a big market for federal tax CPE, suggesting tax pros should become CPE providers as a post-tax season business opportunity.

To be honest, I seriously considered doing so myself.  

A number of tax preparer “quasi-membership” organizations have sprung up during the years since the inception of the regime, most of them solely for the purpose of promoting for-profit companies’ CPE classes.  For the past several months my email in-box has been chock-a-block with CPE offerings from these and other providers.

The main reason I decided against joining the bandwagon is the fact that the existing true membership organizations, like NATP, NAEA, NSA, and NSTP, already do a great job providing CPE classes, and I could not do any better. 

My provider of choice for the past 25 years has been NATP, although I have attended excellent NSTP and CSEA conferences and seminars over the years.  I also attend the state and federal CPE offerings of the NJ chapter of NATP.  While I live in PA, most of my clients are residents of the Garden State, as I had been for almost 50 years.

I have no reason to discredit the newer providers that have sprung up, but my recommendation to those tax pros that need CPE is to first consider the offerings of NATP, NAEA, NSA, and NSTP.


Monday, December 24, 2012


Earlier today I participated in a conversation of “tweets” on Twitter concerning the Internal Revenue Service’s motivation for the new tax preparer regulation regime.
It all began with Joe Kristan’s post “Tax Roundup, 12/24/2012: The Coming Preparer Crash. Also: A Modest Fiscal Cliff Proposal”, which started off by quoting, and commenting on, a recent IRS press release regarding the tax preparer regulation regime -

So far, there are more than 48,000 preparers who have earned RTRP certificates. There also has been an increase in the number of people taking the enrolled agent exam.

Starting Jan. 1, 2014, only registered tax return preparers, enrolled agents, CPAs and attorneys will be authorized to prepare and sign federal individual returns.

There are currently 739,000 tax preparers with 2012 PTINs. Approximately 350,000 of them are subject to the new testing and CE requirements.

Joe’s comment -

It’s likely the population of authorized return preparers will crash.  That will increase demand for the big national tax preparation franchises, which probably was the real goal the new regulations – written by a former president of H&R Block.  A reduction in preparer supply will increase prices.  It will cause some taxpayers on the margin to prepare their own returns, and some to stop filing altogether.  Hardly a step forward for tax administration.”

This resulted in the following Twitter exchange -

Jason Dinesen @dinesentax - @joebwan I think the IRS will extend the 12/31/13 deadline. They won't force tens of thousands of preparers out of business ... will they?

Joe Kristan @joebwan - That would defeat their purposes -- putting preparers out of business.

Robert D Flach @rdftaxpro - I don't think so. Still praying for grandfathering. @joebwan @dinesentax They won't force hundreds of thousands preparers out of business?

Russell Fox@russcfox - @joebwan @dinesentax @rdftaxpro No grandfathering, no extension, eliminate competition. The cynics are usually right when dealing w/gvmt.

Joe Kristan @joebwan - That would defeat their purposes -- putting preparers out of business. RT @rdftaxpro: I don't think so. Still praying for grandfathering.

Joe is correct when he says the regulation regime was “written by a former president of H&R Block”.  The original IRS investigation into regulating tax preparers was overseen by Deputy Commissioner for Operations Support Mark Ernst, who just happened to have at one time been the COO, CEO, and eventually Chairman of the Board of H&R Block.

But Joe’s suggestion that the regulation of tax return preparers was initiated as a scam to “thin the herd” of independent tax return preparers and ultimately promote the profits of Henry and Richard and others of their ilk, if he is truly serious, is a bit much.

I have said all along that the IRS had a legitimate need to at least register tax return preparers under a PTIN system.  The question is whether they went too far in instituting licensure.  I have supported this concept, and especially the requirement that PTIN-holders maintain minimum CPE in federal taxation.  Where I have taken exception is with the initial competency test.  I find it unnecessary.  But if it must be part of the regime, there must be a “grandfathering” exemption for long-time experienced tax professionals like myself. 

I also disagree with the IRS that CPAs and attorneys and “supervised employees” who want to prepare 1040s (and 1040As) for a fee are exempt from the CPE requirement and, if necessary, the initial competency test (I do believe they should also be covered in grandfathering).   

As the press release quoted by Joe indicates, about 300,000 “previously unenrolled” PTIN-holders still have to sit for and pass the initial competency test.  The question here is, as Jason, and I in earlier posts here, have asked, is will the IRS enforce the December 31, 2013 deadline for passing the test and ultimately force perhaps 200,000 tax return preparers, the majority of whom are qualified, competent, experienced, and ethical, out of business?

To do this is definitely not good for anyone involved – the IRS, the taxpayer public, or the tax preparation industry. 

The IRS has been at least giving lip service for years now to the fact that the tax preparer community makes a substantial contribution to the successful maintenance of our voluntary tax system.  Qualified, competent, experienced, and ethical preparers make the job of the IRS easier by preparing correct and accurate tax returns and reducing the need for audits.  And if you ask me, I would say that many more inaccurate and potentially audited returns are prepared by employees of the “fast food” tax preparation chains than by independent preparers. 

The IRS cannot seriously want to “thin the herd” of competent tax return preparers, and certainly would not want to “increase the herd” of less competent and less accurate fast food preparers.  This would substantially increase the workload of the Service.  And, as Joe correctly observes, is “hardly a step forward for tax administration.”

Jason thinks that the IRS will eventually extend the deadline.  I, as I say in my “tweet”, pray that the IRS will come to its senses and initiate grandfathering.  It has to.

So what do you think?


Thursday, December 20, 2012


The California Society of Enrolled Agents has released information on its SUPER SEMINAR 2013, held each year in Las Vegas and Reno.

As the PR says –

Established in 1983, Super Seminar has grown to be the most respected and renowned gathering of tax professionals in the nation.”

It provides up to 24 hours of quality continuing professional education in federal taxation for all levels and designations of tax return preparers.

The 2013 dates are -.

·      May 14 – 16, 2013 in Las Vegas at BALLY’S Las Vagas
·      May 30 - June 1, 2013 in Reno at Grand Sierra Resort & Casino (not downtown).

I attended two SUPER SEMINARs in Reno in the past, and found them to be excellent, rivaling the NATP Annual Conference.  The individual seminar format is not limited to one to two hour sessions, and has several half-day and full-day offerings.

Click here for more information.


Tuesday, December 18, 2012


The “Return Preparer Office Federal Tax Return Preparer Statistics” have been updated through 12/10/2012.

There are now 44,270 RTRPs – previously unenrolled preparers (and some EAs) who have taken and passed the IRS initial competency test.

But there are still over 300,000 - 304,077 to be exact – “preparers with provisional PTINs who have not yet passed the RTRP test”.

So 300,000+ tax return preparers have to sit for and pass the test in the next 12 months.

Once again I ask – is the IRS really going to force 100,000 to 200,000 tax preparers out of business?

The IRS must face reality.  There must be grandfathering!

Friday, December 7, 2012


I do believe that comments to blog posts are not provided the same “attention” as the original post.  Rarely will I return to a post I read yesterday or a few days ago or last month, however interested I was in the subject, to check out the comments.  Therefore when I do receive a comment, or comments, of value I like to feature it, or them, in a separate post.

I received one such comment in response to my discussion of tax preparer “privacy” rules from Enrolled Agent Diane Offutt, Enrolled Agent of Woodstock, Georgia.  Here is what Diane had to say –

I just came across this very informative Blog and will promise to visit more often.

My comment is on the issue of we EAs are NOT allowed to say "so and so is a client of mine" when running into people we know.

At first when I heard this from one of the instructors at NATP I thought forget that, if asked how I know so and so I will just say so and so has been a client for years. However, I started really thinking about it and I can see a reason. We are professionals and like lawyers or doctors, they also would not just come out and say "oh I know so and so for they are a client". It could lead to trouble. What if it is a divorce lawyer...or a GYN doctor...or a cancer specialist? Just a few examples.

In our case, an EA...well, maybe they do not want a family member to know who the tax professional is for some reason. Or maybe they have an ex that is trying to snoop around for personal information (not that we would ever indulge it).

Bottom line, I figure since we EAs ARE professionals, like doctors and lawyers, then in the event I am asked "how do I know so and so" my answer will be simple - "I have known so and so for years and consider him/her a great acquaintance/friend". If I am questioned further as to HOW I know the person I will just counter the question WITH a question " WHY do you ask?" Hopefully THAT will shut the person up.”  

Here is my response to Diane -

Thank you for your comment.

First of all – FYI, I am NOT an Enrolled Agent.  I am a member of the “previously unenrolled”, who will, by the end of next year, be a RTRP.

Obviously the context of the question and the person asking it is an important factor.  

If a friend or fellow client asks the question in casual conversation I do not see a problem.  If a stranger comes up to me out of the blue and asks if and how I know a client I will be on my guard and, as you suggest, ask why they want to know.  And if a stranger, to me, or only a casual acquaintance, comes up to the two of us and asks how we know each other I will let the client with me respond first and take my lead from him/her.

As “professionals” we (well not me any more) have “waiting rooms”, which are often crowded during the tax season.  We do not segregate individual clients in individual waiting areas so they do not see each other, or ask them to wear masks while sitting in the waiting room.  Often in the past I had a client enter my waiting area and be surprised to see a friend or co-worker sitting there.  Nobody ever ran out of the office in fear because they were seen there.   

It is different with a doctor, whose specialty may “betray” personal medical information that the client does not want known.  And perhaps, for the same reason, with certain lawyers, such as the divorce attorney you use as an example.  But there is nothing revealing in the mere fact that a person uses a professional to prepare his/her tax return, other than the intelligence of the person.   

The issue of privacy applies to what the client tells us about their personal finances, and not the fact that they are clients or friends.

I hope you will continue to visit THE TAX PROFESSIONAL, and continue to comment on my posts.

Does anyone want to add to this discussion?


Wednesday, December 5, 2012


I realize that in the course of running a business there are many required expenses that must be incurred.  Some of these expenses may be painful and difficult to accept, but nonetheless are necessary to remain in business, or keep certain clients or customers, and must be paid.

As a tax professional I just made such a payment that is especially heinous.  I sent $100 to the State of New York for the privilege of preparing the 20 or so NY resident and non-resident state income tax returns I do for good long-time clients.

Unlike the lower fee I must pay every year to the IRS to renew my PTIN, which goes for maintenance of the new tax preparer regulation regime, the one and only purpose of this $100 fee is to raise funds for the legislature in Albany to waste on pork and entitlements.

Attorneys and CPAs who practice in New York State are exempt from this payment – but only because they have already pay a licensing fee to Albany.

While the IRS requires at least half of PTIN-holders to take a competency test, however basically useless and unnecessary, and, more appropriately, maintain CPE in federal tax topics, the State of New York requires nothing from those who prepare state tax returns other than a check that does not bounce.

In my practice at least I am not “out of pocket” for this $100 extortion.  I include a specific line item on the invoice of each and every 1040 client who files a NY state income tax return of $5.00, which I clearly identify as “NYS Tax Preparer Extortion Fee”.  As I do at least 20 NY state returns, this covers the $100.

I am surprised that the success of this fee has not prompted other states in financial trouble to enact similar extortion schemes.

Oh well – only at most 9 more tax seasons (including the upcoming one) to go.

To be honest to the State of New York, they at least have done one thing right.  The state’s electronic filing mandate for tax professionals (especially oppressive, as clients cannot "opt out") applies only to those who use tax preparation software to prepare client returns.  Since I do not, I am statutorily exempt from the requirement.  I am thankful for small favors.


Monday, December 3, 2012


In my post THE NATP ANNUAL YEAR-END TAX UPDATE I discussed two issues discussed at the seminar that were of special importance to tax professionals. 

At the end of the post, and in a “tweet”, I solicited comments from fellow tax pros.  Here is what you said in “tweets”, blog posts, and comments about the new EIC due diligence rules -

·      I agree with you 100% Robert.”  Al@AlplouisEA

·      Like with the preparer regulations, honest preparers are saddled with rules they don’t need in response to tax cheaters who will ignore the rules anyway.” 

From CPA Joe Kristan in his 11/30/2012 BUZZ-like “Tax Roundup” post at THE ROTH AND COMPANY TAX UPDATE BLOG.

While I support the concept registering tax return preparers and issuing the RTRP designation, I agree with Joe that one of the rules under the IRS tax return preparer regulation regime is not needed – the initial competency test requirement.

·      Okay now for my soapbox….After many years of preparing tax returns, I have had a few fibbing taxpayers at my desk. Like the family of four that lived on less than $2000 for the year, or the business owner that had NO expenses for his business…etc., etc. While working at a retail chain store (resembling a sweatshop for EIC returns), there were many nail-biting moments and sleepless nights, because the Tax Professionals were told to just push it through. Thank God, I do not work there anymore and my clients now are loyal and trustworthy.

So now I have to get out my crabby social worker hat when the earned income credit taxpayers show up, Thank God I do not have that many, but the crabby social worker hat will be ready on standby.

On my Christmas list, I would like this credit to go away….I also would like a mini cooper but neither will be under the tree. Boo hoo.”

From Kim Kislak’s post “Credits and Soapbox Tax Dribble” at KISLAK’S TAX AND NOTARY SERVICE BL0G.

A disappointing response – I welcome additional comments and posts.  Let’s keep the discussion going.

There is without a doubt tons of fraud connected with the Earned Income Credit – about 30% of all claims are fraudulent. 

But what is the effect of the new excessive due diligence rules for tax preparers? 

Legitimate EIC filers are, by definition, low-income taxpayers who more often than not need the help of qualified, competent tax professionals.  The new rules will cause tax preparers to either increase fees charged to EIC claimants, perhaps substantially (and justifiably so), or, like me, refuse to prepare returns with EIC claims.  In either case it is the legitimate EIC claimant who will be hurt.

I expect that the bulk of aggressive EIC fraud comes from “self-prepared” returns and “ghost preparers”.  So the oppressive due diligence rules forced upon honest and competent preparers will make at most only a miniscule dent in the problem.

The problem is that refundable credits generate excessive tax fraud.  The solution is to do away with refundable credits.  It is as easy as that.

If we must be stuck with the Earned Income Credit, and the IRS is serious about making sure legitimate claimants get the benefit they deserve, the Service should expand its VITA free tax preparation service and provide special training to VITA volunteer preparers in the Earned Income Credit and the new due diligence requirements.  It could also provide VITA centers with some paid staff that would specialize in EIC returns.

In my previous post I mentioned the need for an “advocate” organization for all PTIN holders.  The latest IRS figures indicate that there are currently more than 730,000 PTIN-holders.  There would be strength in this number.  If the IRS was told that 700,000 paid preparers would refuse to prepare tax returns that included an EIC claim unless the new due diligence requirements were “fixed” do you think the IRS would change them?


Friday, November 30, 2012


Earlier this week I attended the NATP’s annual year-end tax update seminar, as I have been doing for more than 20 years.  It used to be “famous”, but now it is “essential” - and is therefore titled “The Essential 1040”.  I attended one of the several offerings located in New Jersey.

I talked about the items of interest to 1040 filers over at THE WANDERING TAX PRO.

One of the items of special interest to tax professionals was the new expanded Form 8867 “Paid Preparer’s Earned Income Credit Checklist”.

I just posted about the fact “that the IRS is getting more out of hand with its ‘due diligence’ requirements for tax preparers who are claiming the Earned Income Tax Credit for clients” here in “WE ARE NOW NOT ONLY TAX PREPARERS, BUT SOCIAL WORKERS AS WELL!”, which was a response to Trish McIntire’s post “EITC Checklist Expanded” at OUR TAXING TIMES.

At the seminar we reviewed in detail the new Part IV “Due Dilligence Requirements” on Pages 3 and 4 of the form.  In my opinion the new hoops that we are required to jump through are TOTALLY RIDICULOUS!

Here we go again!

As I have said time and again, we must call a spade a shovel.  The Earned Income Credit is a federal welfare program.  Period.  In terms of dollars distributed it is, I believe, the largest federal welfare program.

At this point in the discussion I must always make the following statements of personal beliefs -

(1)  There is nothing wrong with the concept of the government providing “welfare” to qualified, “deserving” citizens.  And there is nothing wrong with the government providing encouragements or “rewards” to the working poor with dependent children.

(2)  The government has the fiduciary responsibility to make sure that those who are receiving public assistance, benefits, or “encouragements” are truly “deserving” and meet the requirements established for receiving such benefits.  

Using the Tax Code to distribute welfare, or other government assistance, benefits, or “encouragements, is not good tax policy and not good fiscal policy.

And forcing tax preparers to be Social Workers and do the government’s job of verifying that an individual qualifies for welfare benefits is a bad idea.  It is a job we tax professionals should not accept.

The following are excerpts from my series on MY OBLIGATIONS posted here at TTP in November of 2011, which discussed what I consider to be my obligations to my clients, my practice, and the Internal Revenue Service as a professional tax preparer.  I have highlighted certain statements -

When a client “engages” me to prepare his/her individual income tax returns he/she is basically asking me to assist him/her in preparing a government report.

When preparing tax returns I assume that, unless I have direct personal knowledge to the contrary, the client is telling me the truth.

If a client tells me or indicates on a worksheet that the gross income from a part-time sideline business was $3,525, or that the total medical expenses for the year were $6,257, or that he/she drove 4,206 miles for business I will believe this to be true (again, unless I have direct personal knowledge to the contrary). It is not my responsibility to personally verify all the numbers or statements given to me by a client. I have no obligation, legal or ethical, to audit your return. This is up to the IRS, if they so choose. I am simply preparing the return, to the best of my ability, “based on information supplied by the client”.

It is my obligation, and responsibility, to tell clients about the IRS standards and requirements for documenting income, deductions and credits. But that is where it ends.

Due diligence requires me to ask questions of the client if there is something about which I am unsure, or which appears to be “questionable”, and to make sure that I have all the facts necessary in order to determine whether a deduction, exclusion, or credit is allowable or appropriate.  It also requires me to, as quoted above, tell clients about the IRS standards and requirements for documenting income, deductions and credits.  It DOES NOT require me to personally verify each and every item of income, deduction, or credit claimed on the return.   

The benefit provided by the Earned Income Credit should NOT be distributed via the Tax Code.  It should be distributed the same way as other forms of welfare, with the same safeguards and regulations that are administered by the federal or state employees who administer these other forms of welfare.

Considering the ridiculous new “hoop jumps” required by the IRS, if I were still accepting new 1040 clients I would must definitely refuse any returns that included an Earned Income Tax claim.  As it is, I will not prepare the 2012 Form 1040 (or 1040A) for an existing client who appears to qualify for, and wants to claim, the EIC.  There is too much work, and agita, involved, and too much potential for substantial penalties.

While the NATP and other membership organizations do a good job of speaking on behalf of tax preparers before the federal government and its agencies and representatives, what tax pros of all designations need is an organization whose sole purpose is to actively and aggressively campaign against such abusive and inappropriate rules and regulations like the excessive EIC due diligence requirements (and for a grandfathering exemption from the RTRP test for experienced tax pros).

If the Earned Income Credit must continue to exist in the Tax Code, the very most that tax preparers should be required to do is have taxpayers claiming the credit personally fill out Part I and Part II or Part III of the Form 8867 and sign it under penalty of perjury.  The signed form would be attached to the 1040 (or 1040A).

The seminar also wasted 2 hours that could have been devoted to more important and beneficial federal tax information on the topic of ethics.  Unfortunately this must be done at this seminar to cover the IRS demand that EAs and RTRPs (and potential RTRPs) sit through 2 hours of ethics each year as part of the annual 15 hour CPE requirement.

Regardless of how well the topic was presented by the instructor, the ethics component was truly redundant.  I have sat through the same presentation time and time again.  And I am no more, or less, ethical than I was five years ago.

One item that is covered in this presentation is totally ridiculous and makes absolutely no sense to me.

I am at a local store or restaurant and I run into longtime client Joe.  While we are smoozing Jim, another client of mine, enters and sees us.  Jim knows Joe, but was not aware that I also know Joe.  Jim shows surprise and asks how we two know each other.  From what the instructor said, I am not allowed to say, “Joe has been a client for years”. 

As long as I do not reveal personal and confidential financial or tax information about Joe to Jim, and vice versa, which I would not do, who gives a flying sex act if I happen to tell Joe that Jim is also a client?  Regardless of what the instructor said, in such a situation, unless Joe specifically asks me not to tell Jim, I am certainly going to say, “Joe has been a client for years”.  The IRS be damned!

I would like someone to give me a good reason why I should hide the fact that Joe is a client from Jim.
Your comments on both, or either, issue are solicited.

As usual the NATP seminar was a good, and except for the ethics component, productive one.  I do believe that NATP is the best provider of federal tax CPE.    


Wednesday, November 21, 2012


In her post “EITC Checklist Expanded” Trish McIntire, thankfully back to blogging at OUR TAXING TIMES after taking some time off, explains that the IRS is getting more out of hand with its “due diligence” requirements for tax preparers who are claiming the Earned Income Tax Credit for clients.

The current form 8867 not only acts like a check list for each EITC qualification but now asks about what documentation was provided and what follow up questions the tax preparer asked. For example, one new question ask if the tiebreaker rules were explained when the qualifying child could be claimed by more than one taxpayer. The new page wants to know what documentation, if any, the preparer saw to verify EITC issues like residency, business income and child disability.”

Trish correctly points out that “Preparers have always been told that we aren’t responsible to audit the records taxpayers bring in to us.”  But this is apparently not the case with the EITC.

Here is the story.  The EITC is a welfare program – the largest federal welfare program.  Because this particular form of welfare is “distributed” via the Tax Code, and it often “refundable”, allowing a taxpayer to actually make a profit by filing a tax return (and distorting the federal budget and creating a big part of the “47%”), it is, as Trish properly identifies, “a fraud magnet”.  Various reports over the years have suggested that as much as 30% or more of all EITC claims are erroneous, resulting in billions of dollars of fraudulent payments.

And because it is “distributed” via the Tax Code, and the resulting huge amount of fraud involved, the tax professional has been forced to become a “social worker” and do the government’s work in verifying that the claimant is truly entitled to the welfare benefit – more so than for any other tax deduction or credit.

Is this fair or proper?  Certainly not!

In my specific tax practice it is not too much of a problem.  I no longer accept new clients, so I do not have to deal with any new EITC claimants.  And most of my existing clients are older with grown children, so I have very few EITC claims to deal with, and with those very few I am well aware of the claimants’ situation as I have been preparing their returns for years.

But if I were still “open to the public” and soliciting new clients I honestly believe that I would refuse accepting any EITC returns.  It would not be worth the potential agita or the potential penalty liability.

Trish believes the “EITC is a good program and helps a lot of families”.  But in reality it is NOT a good program.  The idea of providing financial assistance to the working poor with dependent children is a good one – but doing it via the Tax Code is definitely not.

Clearly the idiots in Congress must deal with this problem when they decide to seriously address the need for substantive tax reform, hopefully early in 2013.


Monday, November 19, 2012


Back in September I wrote a letter to the Carol Campbell, the new Director of the IRS Return Preparer Office regarding my issues with the IRS tax preparer regulation regime – specifically the need for a “grandfather” exemption from the initial competency test for experienced tax professionals like myself and the error in exempting CPAs and attorneys from the testing and CPE requirements.

I posted a copy of this letter here at TTP in “My Letter to Carol Campbell”.

On November 17th I received a letter, dated November 13, 2013, from Preston B Benoit, Deputy Director of the Return Preparer Office in response to my letter to Ms Campbell.  Here is the text of the letter -

“Dear Mr. Flach:

I am responding to your letter dated September 10, 2012.  You requested an exemption from the new testing requirements for federal tax return preparers.  You believe that experienced tax professionals who remain current in tax law should be exempt of “grandfathered” in the Registered Tax Return Preparer designation.

Before finalizing these requirements, we requested extensive input and held a series of public meetings in 2009 soliciting written public documents.  We received over 500 responses to IRS Notice 2009-60.  On August 19, 2010, we published proposed regulations on the competency test and continuing education (CE) requirements.  We received more than 60 written comments on the proposals, including comments from organizations representing a substantial number of tax return preparers.  We also held a hearing on the proposals on October 8, 2010.

After carefully weighing all input, we published final regulations on June 3, 2011, that officially exempted Attorneys, Certified Public Accountants, and Enrolled Agents from the new testing and CE requirements.  We also separately issued guidance exempting certain non-signing supervised preparers and individuals who do not prepare any Form 1040 series returns.

I appreciate your experience and suggestions, but we cannot approve your request for an exemption from the new IRS testing requirements.

If you need further assistance, please call me at (202)927-6428.


Preston B. Benoit
Deputy Director, Return Preparer Office"

If you read my letter you can see that I did not request a specific exemption from the testing requirements for myself.  I was suggesting that ALL experienced preparers like me be exempt from the test under “grandfathering”.

I am well aware of the process that the IRS underwent before issuing its final regulations.  My response, in which I said pretty much the same things I said in my letter to Ms. Campbell, was among the “over 500 responses to IRS Notice 2009-60”.  I believe it is actually published somewhere in an IRS document.

While of no real value, the response at least acknowledges the receipt of my correspondence and indicates that someone, perhaps not the person to whom it was addressed, may have actually read it, although not carefully.  It did not address the reasoning behind the IRS decisions not to grandfather and to exempt CPAs, attorneys, and “supervised employees” from the requirements, or suggest that these decisions might be reviewed.

When I write a letter to a specific person I usually expect a response from that person.  Oh well, at least the response came from the Deputy Director and not some clerk or secretary considerably lower on the ladder.

The need to “grandfather” experienced tax preparers is more important than ever, considering the huge number of “potential RTRPs” who have not yet sat for the test (as I pointed out in my post “There Must Be Grandfathering”).

As of November 5th there are still 314,860 “preparers with provisional PTINs who have not yet passed the RTRP test”.  Since the test was first offered about a year ago only 32,902 have passed the test.  So in the past month only 10,343 preparers have taken and passed the test.

Is the IRS really willing to refuse potentially between 150,000 and 200,000 individuals the ability to continue to make a living in their chosen profession?  Forbidding the taxpaying public access to so many competent and experienced preparers is not good for anyone!

I continue to urge membership organizations like NATP to take up the cause of “grandfathering” and actively campaign for it.  And I urge my fellow tax professionals to write to Ms. Campbell requesting that grandfathering be instituted.

It will be interesting to see who BO appoints as the new Commissioner of the IRS, hopefully in January.


Thursday, November 15, 2012


A recent item at on the effects of possible tax simplification on the H+R Block stock told us -

BTIG analyst Mark Palmer writes that ‘some clients have ‘expressed concern’ about ‘the possibility that the U.S. government will embark on a new program of tax simplification that would obviate much of the need for tax preparation assistance’."  

I do not think tax preparers have anything to worry about.  It is true that increased complication does increase business (The Tax Reform Act of 1986, a major rewrite of the Code, was properly nicknamed “The Accountant’s Full Employment Act) - but the opposite is not necessarily true.

While I have little hope that there will be true substantial tax reform or a true simplification of the mucking fess that is the Tax Code in 2013, I, a veteran tax professional, would truly welcome it.  I have said over and over again that dramatically simplifying the Tax Code would NOT affect my business.

If I were to spend each day during the tax season preparing nothing but 1040A forms, I guarantee that I would bill more fees, spend less money, reduce my potential liability, and have less agita to deal with both during and after tax-time. While I obviously charge a higher fee for more complicated returns, I make less profit per hour on these returns. I honestly believe that a truly simple Form 1040 would increase both my efficiency and my bottom line.

If tax returns were much easier to prepare I do not see my clients leaving me en mass to do their own returns.  Many of my current 1040 clients could probably prepare their own tax returns under current law.  They come to me because they do not want to be bothered with the task of doing it themselves.  Because my fees are reasonable it is easier, and more cost and time effective, to have me do it.  Plus they want to be sure they do not miss anything.

And with any tax simplification there would still remain enough complexity in certain areas of the Code to keep us busy.  We would still need to prepare a Schedule C for business income, a Schedule D for capital gains and losses, and a Schedule E for rental income.   

So tax professionals should not fear tax simplification.  We should embrace the possibly and actively campaign for it.

What do you think?


Monday, November 12, 2012


Currently, in order to be allowed to prepare 1040s for compensation, you must register with the Internal Revenue Service and receive a PTIN, and, unless you are a CPA, an EA, an attorney, or a “supervised employee”, pass an initial competency test and maintain at least 15 hours of Continuing Professional Education (CPE) in federal taxation, with at least 3 hours in updates and 2 hours in ethics, each year.

The initial competency test is required regardless of how long you have been preparing 1040s.  But is there really any value in this initial competency test? 

Thanks to Congress the mucking fess that is the Tax Code is constantly changing.  And, hopefully, in 2013 it could change even more so if Congress does the right thing (but don’t hold your breath) and enacts serious and substantive tax reform.

If I, who has been preparing 1040s without incident consistently for over 40 years, am forced to sit for the test I will not be doing so until after the 2013 tax filing season (when 2012 tax returns are filed).  The test will be based on the Tax Code as it is in effect for 2012 returns, or 2011 returns (I am not sure). 

Let us say I pass the test and shortly thereafter, before the end of 2013, the Tax Code is substantially rewritten.  I will have proven basic competence in tax law that, for the most part, is no longer applicable.  

The CPE requirement is much more important than the initial competency test.  Being required to remain current in tax law by taking at least 15 hours of CPE each year is certainly a better indication of competence than any test that is, regardless of what happens in Congress, at least partially obsolete once passed.

While I may be able to accept CPAs and attorneys being exempt from the competency test, since it is really not of much value anyway, it is a huge mistake to exempt these so-designated professionals who want to prepare 1040s for compensation from the 15 hours in federal taxation CPE requirement. 

It is true that these professionals already have CPE requirements within their individual designation – but none of the required CPE has to be in federal taxation.  If a CPA wants to be a compensated 1040 preparer then he/she should be required to include 13 hours of CPE in federal taxation in his/her existing annual CPE requirement to maintain certification as a CPA, and the same for attorneys.  CPAs and, I expect, attorneys are already required to take the annual 2 CPE hours in ethics preaching.  This would certainly not be an added burden for these professionals, as they are already required to take CPE.  To be honest, many CPAs who do prepare 1040s already take some, if not 13 hours, CPE in federal taxation each year.

It is correct for the IRS to want to register tax return preparers via the PTIN system.  And it is proper for the IRS to require that these preparers remain current on federal tax issues via required CPE.  The CPE requirement is not an added burden on serious and legitimate preparers – as I have said all along, if a serious tax preparer is not already taking at least 15 hours per year in tax CPE he/she certainly should be.  But the initial competency test is indeed a burden that in reality has minimal value.

The IRS should do away with the initial competency test for becoming a RTRP.  If it does not do away with it completely, it should at least initiate a “grandfathering” exemption for experienced tax preparers. 
And CPAs, attorneys, and “supervised employees” should not be exempt from the CPE in taxation requirement.  These individuals should be subject to the same requirements as the "previously unenrolled" and also be issued the separate RTRP designation.

So what do you think?