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  I will have proven basic competence in tax law that, for the most part, is no longer applicable.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?


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