LET THE DEBATE BEGIN

Enrolled Agent, and fellow tax blogger, Jason Dinesen of Iowa has responded to the recommendations I offered in “My Letter to Carol Campbell” in a post titled “RTRPs, CPAs, Attorneys and Grandfathering” at his excellent blog DINESEN TAX, INC, formerly known as DINESEN TAX TIMES.

He takes on two of my recommendations -

“Many, if not most, RTRPs and enrolled agents seem to believe that CPAs and attorneys should be required to take the RTRP exam in order to prepare tax returns.

Not me.

I am open to Robert Flach’s idea of grandfathering unlicensed tax preparers such as himself, who can demonstrate a certain amount of experience and a certain amount of continuing education.

I am not open to the idea of requiring a CPA or an attorney to take the RTRP exam.”

Why?

“I agree completely that it’s wrong for the public to automatically assume that CPA equals ‘tax expert’. As an enrolled agent, I am as annoyed as anyone over that misconception.

But forcing a CPA or an attorney to take an open-book exam over basic tax law would be insulting to CPAs and attorneys.”  

CPAs have been insulting EAs and competent previously unenrolled preparers for years by perpetuating the “urban tax myth” that CPAs are the only tax experts and that CPAs “own” the area of taxation. 

Fellow blogger Marilyn Lawver, who just happens to be a CPA, wrote the following in a blog post a few years back (the highlight is mine) –

“Robert is correct that a CPA is not specifically licensed for tax preparation, rather ‘a CPA is a licensed accountant, authorized to certify audits of financial statements’. Just a couple of months ago, I was pondering this exact issue. I was thinking about all the fancy credentials the AICPA offers for CPAs in other specialties - financial planning, fraud examination, business valuation - and wondering how to become a certified tax expert.

So I emailed the AICPA asking about it. Here's the exact wording of the response I received:

’We do not offer a credential in taxation. In general, our approach has been not to develop credential programs around areas for which the public already believes CPAs to 'own'. In addition, we do not endorse a particular tax credential.’”

Exempting CPAs from proving competence or remaining current (they are also exempt from required CPE in federal taxation) in 1040 preparation continues to perpetuate this “urban tax myth”.

I do agree with Jason that CPAs and attorneys “have already passed much, much more rigorous tests”.  There is no doubt that the CPA and bar exams are much more extensive and difficult than the RTRP competency exam (as is the Special Enrollment Exam for EAs).  But the CPA and bar exams have nothing to do (or at most only minimal to do) with 1040 preparation.  I expect that an engineer or architect must also take a rigorous test to be licensed, but would you want an engineer or architect preparing your tax return?

Jason goes on to say – “And anyway, what would it prove? The RTRP exam is an open-book test over basic tax law.”  And he explains that the RTRP test is “a test over basic tax law – it’s not designed to be a ‘tax expert’ test”.

That is not the issue.  Regardless of whether there is any real value to requiring the test of anyone, the issue is that the Internal Revenue Service wants anyone who intends to prepare more than a minimal number of tax returns for compensation to demonstrate some degree of competence in federal 1040 tax law.  By exempting CPAs and attorneys from this test the Service is saying that the CPA and bar exams are tests of competence in 1040 preparation – which is just not true.

It is true, as Jason points out, that CPAs and attorneys are “held to ethical standards by their state boards, and I believe one of those standards is to not practice in an area in which they don’t have knowledge.”  But professional ethical standards did not prevent Enron or other CPA or attorney created tax fraud.  And the ethical standards of doctors and other professionals do not prevent malpractice.

Does Jason also believe that CPAs and attorneys should be exempt from required CPE in taxation because they are already required to maintain CPE (although none of the required CPE has to be in taxation) to maintain their current designation?

Talking about “insulting” CPAs and attorneys – I believe it is an insult to someone like me, who has been preparing 1040s without incident for 40 years and who has maintained an average of 20+ hours per year in CPE in federal taxation for at least the past 25 years, to be forced to take a test to prove that I know what I have been doing all these years.

Jason promises “more to come in future blog posts”.  I look forward to his future posts on the subject, and to a continued debate on this subject.

The floor is open for discussion.

RDF

MY LETTER TO CAROL CAMPBELL

Below is the text of a letter I have mailed to Carol Campbell, David Williams’ replacement as Director of the IRS Return Preparer Office -

Dear Ms Campbell:

Congratulations on your recent appointment as the new Director of the IRS Return Preparer Office.

I have been preparing 1040s for individuals in all walks of life without incident since February of 1972.  FYI - during my 40+ years in “the business” I have never used flawed and expensive tax preparation software to prepare an individual income tax return.  Each year I prepare about 400 sets of income tax returns manually. 

I am the author of the popular tax “weblogs” THE WANDERING TAX PRO (http://wanderingtaxpro.blogspot.com), around since the summer of 2001, THE TAX PROFESSIONAL (http://thetaxprofessional.blogspot.com), and the NEW JERSEY TAX PRACTICE BLOG (http://njtaxpractice.blogspot.com), and also write on tax planning and preparation topics for TheStreet.com and its sister site MainStreet.com, and the publications of the National Association of Tax Professionals, of which I have been a member for 25 years, and its New Jersey chapter.

I have been a vocal supporter of the concept of registering and regulating tax return preparers, and of the Registered Tax Return Preparer designation, since it was first introduced by Commissioner Shulman, although I do take serious exception to some of the requirements of the current regulation regime.

I very strongly believe that long-time experienced tax professionals who remain current in tax law, like myself, should be exempt from the initial competency examination as a requirement for receiving the RTRP designation under some kind of “grandfathering”.

I am not saying that years in the business automatically equals competency.  There are preparers who have been around for 3 or 4 decades who are not sufficiently competent and current in today’s tax law.  My formula for “grandfathering” is years of experience + proof of extensive ongoing professional education.   

I would exempt from the initial competency test all paid tax return preparers who have consistently been preparing 1040s full time (I mean during the tax season – not 40 hours a week all year round) for at least 5 full years (60 months) prior to registering for a PTIN, and who have earned a minimum of 50 hours of CPE in federal income taxation topics during the previous 3-year (36 months) period. 

To be perfectly honest - after preparing tax returns competently, professionally, and ethically for over 40 years I find it somewhat demeaning to be forced to take a test to prove that I know what I have been doing all this time.

The fact that 300,000+ potential RTRPs have not yet taken the initial competency exam with less than 16 months left before the clock runs out almost demands some kind of grandfathering.  It does no good for the IRS, or the taxpayer public, to force tens of thousands of competent and experienced tax professionals out of business, or cause them to go “underground” and become “phantom” preparers.

I also strongly believe that CPAs and attorneys who want to prepare federal income tax returns for compensation, and who would not be exempt under the previously discussed grandfathering, should be required to take the initial competency examination and maintain the required annual 16 hours of continuing professional education in federal taxation topics in order to do so – just like the rest of us.  Only Enrolled Agents should be exempt from the RTRP requirements.

For years Certified Public Accountants have unduly benefited from an erroneous “urban tax myth” that a CPA is automatically a tax expert by merely possessing the initials.  The current exemption of CPAs from demonstrating competence and currency in federal individual income tax only adds to this myth.

Your predecessor, David Williams, and other high-level IRS officials have acknowledged that the CPA exam and the bar exam are not tests of 1040 tax knowledge, and “blame” the exemption from testing and CPE requirements on a federal statute and an erroneous  confusion of “preparing tax returns” with “practicing before the IRS”.

I am aware that there are many competent tax experts currently in practice who are CPAs.  However this is because of the specific training, experience, and continuing education of the individual, and has absolutely nothing to do with having once passed the CPA exam.

I have absolutely no problem with the 16 hour annual CPE requirement for maintaining one’s PTIN and RTRP status.  I have taken, on average, much more than 16 hours of CPE in federal and state taxation per year for at least the past 25 years.  My only concern is requiring preparers to waste time and money on 2 hours of “ethics” each and every year.  2 hours of ethics in the first year of registration and 1 hour of ethics updates every two or three years thereafter would be sufficient.

While I feel that regulation of professional tax preparers would be better handled by an independent industry-based organization, such as an “American Institute of Registered Tax Return Preparers”, I certainly prefer having the Internal Revenue Service regulate preparers as it now does to having Congress legislate regulation.

I would like to see the IRS create a “civilian advisory committee” to its Return Preparer Office, similar to the “civilian advisory committees” already in existence for other IRS functions, and would gladly volunteer to serve on such an entity.

Thank you for allowing me to give you my thoughts on the IRS tax return preparer regulation regime.  If I can be of any help to you or your office in the future please do not hesitate to contact me.

Sincerely yours,

Robert D Flach

Any comments?

RDF