A TWITTER CONVERSATION CONTINUES

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.

RDF