MEASURING THE SUCCESS OF TAX PREPARER REGULATION

In commenting on “Six Tax Predictions for 2012” by EA Jason Dinesen of Iowa from his DINESEN TAX TIMES blog I “tweeted” –

“I agree with all except #6.”

Here is #6 -

“6. IRS efforts to regulate preparers will not have the desired effect, in 2012 or beyond. I think the result of this bureaucracy that is being created is that more burdens and annoyances will be placed on preparers, with no discernible benefit to consumers.*

Jason included a note -

“Clarification to #6 based on reader feedback — I do think preparer regulation is good in theory. I just really question if the IRS can execute the oversight effectively. I’ll write more on this in a future blog post.”

I received the following “tweets” in response to my comment:

“But we knew you disagree w/that one. Curious, Robert: how would you measure success for preparer regs next year?”  from Joe Kristan

“I used to be for preparer regulation but am now jaded. I don't think the IRS can possibly administer it effectively.“ from Jason Dinesen

Joe raised a good question.  Since I obviously cannot address it properly in 140 characters I have decided to answer here.

The question again – How would you measure success for tax preparer regulation in 2012?  

Let me begin by saying that I agree that the IRS may not be the ideal organization to administer the regulation of tax return preparers.  But such regulation does somewhat fit into Publication 230, and the IRS has historically regulated “previously unenrolled” preparers under Pub 230 – although the regulation of CPAs, EAs and attorneys had been in the area of “representation before the IRS”.  The IRS has now brought all preparers under Pub 230 by adding “preparation” to “representation”.

I believe that “preparation” is truly separate from “representation” and this separation should be officially recognized.  So if the IRS does not have the ability to regulate “preparation” who should administer such regulation?

The last thing I would ever want is for the idiots in Congress to regulate tax return preparers.  The alternative, I expect, is a kind of “American Institute of Registered Tax Return Preparers” – independent industry-based regulation.  This organization could have on its board a representative from the IRS as well as from other industry components such as AICPA, ABA, NSA, and NATP. 

Registration and issuance of the PTIN would remain with the IRS, as the IRS does have a need for some kind of registry.  But the independent organization would “control” the RTRP designation and the background checks, testing, and CPE maintenance functions.  The IRS would officially recognize the AIRTRP as the governing authority for the RTRP designation, though the IRS would be able to suspend or remove this title if appropriate due to pre-regulation Pub 230 or other existing preparer penalty violations.

If I have to provide my fingerprints to someone in order to continue to practice my profession, I would rather give them to an independent, non-governmental agency, than to the IRS, even if they “promise” not to use them for anything else than to see if the person has a felony conviction and to destroy them after the background check has been conducted.

The official rule would be that only RTRP’s and EAs (here I would change the designation to ETRP – Enrolled Tax Return Preparer – to do away with the current confusion, and continue to have that designation maintained by the IRS) would be permitted to prepare federal individual income tax returns for a fee.  I would have the AIRTRP “grandfather” certain experienced preparers out of the testing requirement but maintain the annual 15 hour CPE in federal tax topics requirement.  

EAs, or ETRPs, would not be governed by the AIRTRP, as they would not need the RTRP designation.  But CPAs and attorneys who wish to prepare Series 1040 returns (I do believe that CPAs should probably be exempt from testing for corporate, partnership, trust, and estate returns – and that a second level of testing eventually be instituted for RTRPs who want to prepare these returns) and their “supervised employees”, would be required to be tested, unless “grandfathered”, and maintain 15 hours of CPE in federal tax topics (or rather 13 hours, as they probably already have the 2 hour ethics requirement to maintain their current designation), and would be given the RTRP designation in addition to their current initials – Joe Kristan, CPA, RTRP.

Again – only RTRPs and EAs (ETRPs) would be allowed by law to prepare federal 1040 series returns.

Having an independent AIRTRP would also avoid the apparent statutory requirement that CPAs and attorneys cannot be further regulated by a government agency, and therefore do away with the legal need for their exemption from testing and CPE maintenance.  Obviously the CPE in federal tax topics would be a part of their current CPE requirements, and not in addition to.   

But I have not yet addressed Joe’s question (in case you forgot it is - How would you measure success for tax preparer regulation in 2012?).

I have always agreed with Joe Kristan that the regulation of tax return preparers will not do away with unscrupulous “ghost preparers” (although I do think it will make a small dent).  Crooked preparers will find crooked taxpayers, and vice versa, regardless of regulation.  Currently crooked corporate executives find crooked CPAs and attorneys with ease.  And the classic example – the regulation of CPAs did not stop the Enron mess.

I do think it will do away with the “casual” preparer (and Joe agrees), who honestly thinks he knows how to properly prepare federal income tax returns and does a dozen or so.  I think this is a good thing.  We should see less signs announcing “Tax Returns Prepared Here” at barbershops and “beauty parlors”, auto sales lots, check cashing outlets, real estate and insurance sales offices, etc, etc, etc.    

It will be difficult to truly measure the success of the regulation concept until the issuance of the RTRP designation is fully phased in – which will not be until December 31, 2013 (as we have until then to take and pass the competency test).

If there is any success with the program for 2012 it will require that the IRS aggressively publicize the fact that only those individuals who have registered and received a PTIN are allowed by law to prepare 1040s for a fee, to, as promised, aggressively seek out taxpayers who have filed alleged “self-prepared” returns that appear to have been prepared by ghost preparers, and to assess serious fines and penalties on these taxpayers once caught.

The ultimate benefit of the regulation regime, regardless of who administers it, is the mere existence of the RTRP designation – giving credibility to us qualified and competent “previously unenrolled” preparers, and providing the taxpayer public with some kind of proof that a person is at least basically knowledgeable and competent in 1040 preparation.

And, if my suggestions were followed, debunk the “urban tax myth” that all CPAs are 1040 experts by virtue of their initials.

So, Joe and Jason, and other tax professionals, what do you think?

RDF