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.



  1. I've made no bones about being pro-testing. I have, however, considered tweeting @Pontifex help get the special dispensation you truly deserve Robert.

    As of now, tax preparers that aren't EAs, attorneys (like that makes any sense), CPAs or already-registered RTRPs have one year and 3 days to pass the initial test of competency. That's a generous amount of time IMHO.

    The testing fee is not a burden on preparers (though I do feel bad for preparers who may have to travel 100s of miles from remote areas in order to take the test). The cost of the CE requirement is just another cost of doing business, as is refreshing your PTIN every year.

    So you have $116 to initially become a RTRP. You have $125 for your annual PTIN fee. 15 hours of CPE can run as little as nothing but let's say it is $500/year. If a preparer has 200 clients you are looking at a cost of $4/client return. I don't think raising fees $4 across the board is going to put any small preparer out of business.

    As of right now, the IRS is working preparer registration/regulation from a position of strength. They have set a deadline for testing that is more than fair. The fee for taking the test is also fair. The CPE requirement gives limited assurance to the IRS, the industry and the clients that the preparer is up-to-date on the changes. Preparers have been told they will not be allowed to prepare returns without credentials if they don't pass the test. Should the IRS back off the deadline they will prove to be a weak agency doing a poor job of regulating the industry. From where I stand, if the preparers can't get their sh*t together in a year and pass the test, they should be put out of business.

    I don't like having to show up at the RMV every few years to renew my license, but I do find being able to drive a car very convenient so I haul my butt there every few years, pay the idiot behind the RMV counter and get my picture taken. It's a 2 hour ordeal that I can do without but it beats having to take a cab everywhere.

  2. Dave-

    I support the registration of professional tax return preparers, and have from the beginning. I also strongly support the annual CPE requirements, and feel they should apply to all individuals who want to prepare 1040s for compensation, regardless of the initials that appear after their name.

    I have no problem with paying $63.00 per year as an annual licensure fee (although I would prefer to pay less – and I hate having to pay the State of New York $100 in extortion in order to be able to prepare 20 or so NY state income tax returns).

    I have been taking on average more than the required 15 hours of CPE in federal taxation (probably at least 20), as well as additional hours of state tax CPE, each year for over 25 years now. I have no problem with the cost of CPE – and agree that it is a cost of business. I have continually said that any serious tax return preparer who was not already taking at least 15 hours of CPE each year should have been.

    I do not support the initial competency test, although I can see that there may be a need to weed out complete incompetents. I do not believe that the IRS cares one hoot about having tax preparers prove competence, since more than half of the current PTIN-holders are exempt from the test (only EAs should be exempt from anything).

    I also feel that I, who have been preparing 1040s consistently without incident for over 40 years, should NOT be forced to take a test to prove that I know what I have been doing all these years, and that there should be some kind of grandfathering for those like me. I do not offhand remember the cost of the exam, but whatever it is I believe it is a waste of my money. I do, however, feel that I should be required to prove that I remain current by maintaining annual CPE in federal taxation, as should all paid tax preparers.

    I do not believe that 12 months is enough time for the balance of the untested previously unenrolled PTIN-holders to all sit for and pass the test. Let us look at the logistics.

    There are 300,000 PTIN-holders who need to pass the test in 2013. I do not know how many participants are permitted in each test. If it is 30 it means that the test needs to be offered 10,000 times in 2013. Even if 60 can take the test at a time that is 5,000 separate tests. That would be 100 tests in each state or 8 in each state each month. I do not know any serious experienced tax pros who can afford to take the time to sit for the test during the tax season – so that knocks about 3 months off the testing time.

    So the bottom line is that 300,000 PTIN-holders have 9 months in order to pass the test – which I believe is virtually impossible.

    While I can understand your thinking concerning the IRS not wanting to show weakness and extend the deadline after taking such a hard line - as I have said before, it would be a disaster for the IRS, the taxpayer public, and the tax preparation industry for the Service to force potentially 200,000 tax professionals out of business. The Obama Administration wants to reduce unemployment, and not increase it!


  3. "There are 300,000 PTIN-holders who need to pass the test in 2013. I do not know how many participants are permitted in each test. If it is 30 it means that the test needs to be offered 10,000 times in 2013. Even if 60 can take the test at a time that is 5,000 separate tests. That would be 100 tests in each state or 8 in each state each month."

    I counted around 275 separate testing facilities ( There is one in every state (including PR and DC).

    You can schedule the exam up to 6 months ahead of time (page 5 of So it can be reserved now and not be taken until the end of June. That leaves candidates another 6 months to retake the test if the flunk it the first time.

    300,000 divided by 275 = 1,091 candidates per test site.

    There are at least 150 business days between 4/16 and 12/31 (note that the Prometric center closest to me also allows Saturday exams). So if every potential RTRP candidate were to take the test, each site would have to administer 7 RTRP exams each day on average.

    Doable??? You betcha!