Monday, December 24, 2012


Earlier today I participated in a conversation of “tweets” on Twitter concerning the Internal Revenue Service’s motivation for the new tax preparer regulation regime.
It all began with Joe Kristan’s post “Tax Roundup, 12/24/2012: The Coming Preparer Crash. Also: A Modest Fiscal Cliff Proposal”, which started off by quoting, and commenting on, a recent IRS press release regarding the tax preparer regulation regime -

So far, there are more than 48,000 preparers who have earned RTRP certificates. There also has been an increase in the number of people taking the enrolled agent exam.

Starting Jan. 1, 2014, only registered tax return preparers, enrolled agents, CPAs and attorneys will be authorized to prepare and sign federal individual returns.

There are currently 739,000 tax preparers with 2012 PTINs. Approximately 350,000 of them are subject to the new testing and CE requirements.

Joe’s comment -

It’s likely the population of authorized return preparers will crash.  That will increase demand for the big national tax preparation franchises, which probably was the real goal the new regulations – written by a former president of H&R Block.  A reduction in preparer supply will increase prices.  It will cause some taxpayers on the margin to prepare their own returns, and some to stop filing altogether.  Hardly a step forward for tax administration.”

This resulted in the following Twitter exchange -

Jason Dinesen @dinesentax - @joebwan I think the IRS will extend the 12/31/13 deadline. They won't force tens of thousands of preparers out of business ... will they?

Joe Kristan @joebwan - That would defeat their purposes -- putting preparers out of business.

Robert D Flach @rdftaxpro - I don't think so. Still praying for grandfathering. @joebwan @dinesentax They won't force hundreds of thousands preparers out of business?

Russell Fox@russcfox - @joebwan @dinesentax @rdftaxpro No grandfathering, no extension, eliminate competition. The cynics are usually right when dealing w/gvmt.

Joe Kristan @joebwan - That would defeat their purposes -- putting preparers out of business. RT @rdftaxpro: I don't think so. Still praying for grandfathering.

Joe is correct when he says the regulation regime was “written by a former president of H&R Block”.  The original IRS investigation into regulating tax preparers was overseen by Deputy Commissioner for Operations Support Mark Ernst, who just happened to have at one time been the COO, CEO, and eventually Chairman of the Board of H&R Block.

But Joe’s suggestion that the regulation of tax return preparers was initiated as a scam to “thin the herd” of independent tax return preparers and ultimately promote the profits of Henry and Richard and others of their ilk, if he is truly serious, is a bit much.

I have said all along that the IRS had a legitimate need to at least register tax return preparers under a PTIN system.  The question is whether they went too far in instituting licensure.  I have supported this concept, and especially the requirement that PTIN-holders maintain minimum CPE in federal taxation.  Where I have taken exception is with the initial competency test.  I find it unnecessary.  But if it must be part of the regime, there must be a “grandfathering” exemption for long-time experienced tax professionals like myself. 

I also disagree with the IRS that CPAs and attorneys and “supervised employees” who want to prepare 1040s (and 1040As) for a fee are exempt from the CPE requirement and, if necessary, the initial competency test (I do believe they should also be covered in grandfathering).   

As the press release quoted by Joe indicates, about 300,000 “previously unenrolled” PTIN-holders still have to sit for and pass the initial competency test.  The question here is, as Jason, and I in earlier posts here, have asked, is will the IRS enforce the December 31, 2013 deadline for passing the test and ultimately force perhaps 200,000 tax return preparers, the majority of whom are qualified, competent, experienced, and ethical, out of business?

To do this is definitely not good for anyone involved – the IRS, the taxpayer public, or the tax preparation industry. 

The IRS has been at least giving lip service for years now to the fact that the tax preparer community makes a substantial contribution to the successful maintenance of our voluntary tax system.  Qualified, competent, experienced, and ethical preparers make the job of the IRS easier by preparing correct and accurate tax returns and reducing the need for audits.  And if you ask me, I would say that many more inaccurate and potentially audited returns are prepared by employees of the “fast food” tax preparation chains than by independent preparers. 

The IRS cannot seriously want to “thin the herd” of competent tax return preparers, and certainly would not want to “increase the herd” of less competent and less accurate fast food preparers.  This would substantially increase the workload of the Service.  And, as Joe correctly observes, is “hardly a step forward for tax administration.”

Jason thinks that the IRS will eventually extend the deadline.  I, as I say in my “tweet”, pray that the IRS will come to its senses and initiate grandfathering.  It has to.

So what do you think?



  1. It is a basic test so it should NOT have a grandfathers clause included. I know of several prepares that have been preparing returns for years but seem to forget the new rules and regs cause they don't do education.

  2. I have to give a "no" 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.