SO LONG, FAREWELL, AUF WIEDERSEHEN, GOOD NIGHT!

Joy to the world - tax season’s here.

I’ll soon be flush with cash!

Let every client be organized,

and give me all I need, and give me all I need,

and give me all I need to prepare their returns!

My 42nd tax season will officially begin tomorrow - let the deluge begin!

As is my custom, due to the demands of the filing season I will be taking my annual “tax season hiatus” from posting to THE TAX PROFESSIONAL and THE WANDERING TAX PRO from tomorrow through April 15th.

Between now and April 15th I will barely have time to relieve myself let alone blog!  Nor will I have time to respond to comments. If a comment requires a response I will do so after April 15^th.

I promise that once the tax season is over I will be posting more frequently here at TTP.   

“Talk” to you when it is all over!

RDF

BTW – be sure to stop by THE WANDERING TAX PRO tomorrow for the annual posting of my TWELVE DAYS OF TAX SEASON!

THE INSTITUTE FOR JUSTICE RESPONDS TO THE DEPARTMENT OF JUSTICE

As you know, on January 18, 2013, in a move that surprised the tax preparation community and, I expect, the Internal Revenue Service as well, the U.S. District Court for the District of Columbia shut down the IRS tax return preparer regulation program.

In his decision in Sabina Loving, et. al. v. Internal Revenue Service, Judge James E. Boasberg said the Internal Revenue Service had overstepped its authority by regulating tax return preparers. Congress never gave the IRS the authority to license tax preparers. The judge's order included an injunction that bars the IRS from continuing its implementation of the RTRP program.

The Justice Department subsequently filed a motion on behalf of the IRS requesting that the court suspend the injunction and allow the Service to continue its RTRP program, pending resolution of an appeal to be filed within 30 days.

In the latest development in this story, yesterday the Institute for Justice filed a response in federal court to the Justice Department’s request for a stay of the injunction.  

In briefly reviewing the Institute for Justice filing I discovered that a blog post by me here at TTP, which talked about the impossibility of the 300,000+ still untested potential RTPS to be able to take and pass the test by the December 31, 2013 deadline, was referenced in the latest filing by the Institute for Justice, in a footnote (#11 on Page 10).  Posts by Joe Kristan of THE ROTH AND COMPANY TAX UPDATE BLOG, Jason Dinesen of DINESEN TAX TIMES, and Kelly Phillips Erb of FORBES’ “TaxGirl” are also referenced in the footnotes.  

In discussing the Department of Justice motion, fellow “twit” (we follow each other on Twitter) Dan Alban, attorney for the Institute for Justice, explains that –

“The IRS has repeatedly and grossly misrepresented how the court’s ruling in this case will affect this tax season, tax payers and the IRS itself.”

To quote the introduction to the January 29 filing -

“The sky is not falling. Despite the dire claims of Defendants (hereinafter “the IRS”), the world of tax administration will not come to an end if this Court’s injunction against the IRS’s unlawful licensing scheme for tax preparers remains in place while on appeal. In fact, the absence of the registered tax return preparer (“RTRP”) licensing regulations will make this income tax season no different from every prior tax season. For the 100-year history of the modern income tax, tax preparers have always been free to assist taxpayers in preparing returns without obtaining a license from the IRS or any other federal agency, and taxpayers have always been free to hire whomever they pleased to prepare their tax return.”

The IFJ contends the the Department of Justice motion made “several misleading claims and unsettling arguments, including inflating the monetary cost of the ruling to the agency by over 2,000 percent”.

Dan points out -

“But even taken at face value, the IRS’s arguments are truly appalling.  The IRS told the court that their licensing scheme is a cash cow, and the agency must be permitted to continue milking hapless tax preparers, despite a federal court declaring their scheme unlawful.”

I originally supported the IRS regulation regime, mostly as a “lesser of two evils” alternative to having regulation legislated by Congress.  I supported the concept of the RTRP designation, and felt that this certification would provide experienced, competent, and ethical “previously unenrolled” preparers like myself with the respect and recognition we deserved.  But all along I believed the best option would be certification and oversight by an independent industry-based organization (I discuss this option in detail in an editorial that will appear in TAXPRO TODAY either tomorrow or Friday).

While I respected the original lawsuit’s “libertarian” arguments, I did not agree that the IRS regulation regime would force tons of serious and legitimate tax professionals out of business.  I do agree that the regulation would result in the loss of many probably good intentioned and ethical part-time seasonal “casual preparers” (as Joe Kristan has called them) with minimal training and competence – but I also feel that this is not necessarily a bad thing.

At this point I do support the court’s decision.  I feel that the injunction should stand and the IRS RTRP program should remain shut down for good.  The court should not grant the Department of Justice motion.  There would be no real “damage” to the IRS if the injunction stands, while, as I mentioned in an earlier post here, there would be much potential “damage” to tax preparers if the regime were to temporarily continue and the court decision is eventually upheld, as I expect it will be.

RDF

CHOOSING A TITLE FOR THE VOLUNTARY TAX PREPARER CERTIFICATION

When discussing my proposed industry-administered National Institute of Registered Tax Return Preparers I used RTRP as an example for the designation the organization would provide participating preparers.

But RTRP is not the proper designation.  While the court case shut down the IRS regulation regime – the RTRP testing and CPE requirements - it did not end the need for those who prepare tax returns for compensation to “register” and receive a PTIN.  So, in reality, all individuals with a PTIN are “registered tax return preparers”. 

The obvious choice of designation is “Certified Tax Return Preparer”, as this is a voluntary certification program.  However I expect that the AICPA would be up in arms at the use of the term “certified”. 

“Tax Return Professional” is an option – but this would do a disservice to those preparers who are true tax professionals that choose not to seek the designation.  The new program is, after all, voluntary.  One does not need to have to participate in this program in order to be a “tax professional”.

I would not use “Licensed Tax Preparer”.  As I said in a previous post here, the term license implies government involvement and a legal requirement or distinction.

The designation “Chartered Tax Professional” has been used, but the term “chartered” confuses US tax preparers with European preparers, as the equivalent of a CPA in Europe is a Chartered Accountant.  

There currently are “Accredited Tax Preparer” and “Accredited Tax Advisor” designations.  But I do not think “accredited” is the proper title.  And these titles are already in practice and may be copyrighted by ACAT.

It would seem that “Certified Tax Preparer” would be the best choice.  Do you think the AICPA would protest?  Do we really care if they do?

Whatever title we choose for the designation, if the concept goes beyond the proposal state, I do not want to repeat the error of the “Enrolled Agent” designation – which totally confuses the public.

So what do you think the professional designation for tax return preparers should be?

RDF

I HAD TO LAUGH . . .

I had to laugh while reading all the tax profession “insiders” – i.e. representatives of various membership organizations, fast food tax preparation chains, software providers, and the IRS itself – complain about the terrible earth-shaking consequences that will come from the shutting down of the IRS tax preparer regulation regime by the US District Court.

I have been preparing federal and state income tax returns for individuals in all walks of life for over 40 years.  Prior to the initiation of the IRS program in 2011, the tax preparation business has never been regulated to any real degree.  Obviously crooked tax preparers, when discovered, were prosecuted for tax fraud and other crimes, and there were certain regulations under Circular 230, and “preparer penalties”. 

But for as long as I have been in business, and for the years before, there were no real restrictions to or regulations for being able to prepare income tax returns for a fee.   As I said in my post on preparer regulation/licensure/certification – any cafone could hang out a shingle as a “professional tax preparer”.  And while many a cafone did, many competent and ethical individuals also did, and in doing so provided an invaluable service to our voluntary tax system.  

And this tax system has survived and functioned all these years.

As I stated in a previous post here at TPP, I did not object to the IRS regulation regime, except for two of its regulations, and would gladly accept industry-based, or even IRS, oversight of the tax preparation business.  But I would also be just as happy to continue operating without regulation or stricter oversight, as I have been for the past 40 years.

Some kind of certification program, required or voluntary, would benefit the industry and the public.  But continuing to have no special certification or regulation program would not hurt the industry and the public.

RDF

JUST SAY "NO" TO THE STAY OF THE INJUNCTION

Late Wednesday night, January 23, the Justice Department filed for a 30-day stay of the injunction so the IRS could respond to the court's decision in Loving v IRS.

I do not believe the IRS should be able to continue to offer the competency test, and accept reservations and payments therefor, while the decision is being appealed.  Here I agree with Dan Alban and the Institute for Justice.

If the decision is eventually upheld, those tax preparers who paid for and took the competency test will have wasted their time and money (not only on the actual test, but also on classes to prepare for the test).  The number of tax preparers who will have done so will increase if the stay of the injunction is granted. 

If the IRS eventually wins its appeal it can then continue with the testing. 

Nobody will be hurt any further if the injunction stands until the final appeal is decided.  All that happens if the IRS wins is that it will have to push back its original December 31, 2013 deadline for passing the test.

So “just say no” to the stay of the injunction.

RDF

TAX RETURN PREPARER REGULATION, LICENSURE, AND/OR CERTIFICATION

In light of current developments I have decided to publish in detail my opinions on the subject of tax return preparer regulation, licensure, and/or certification.

Since the beginning of the IRS inquiry I have supported the concept of “licensing” tax return preparers. 

Prior to the IRS attempt at regulation, any cafone could hang out a shingle as a “professional tax preparer”. A person with no knowledge or experience could simply purchase a tax preparation software package and offer themselves up to the public as a tax expert.  There was no standard to assure that a person who calls himself/herself a “tax preparer” actually knows his arse from a hole in the ground when it comes to the Tax Code.

One morning, several years ago, while walking on the main commercial street of my section of Jersey City I saw a sign in the window of a barber shop that read “tax returns prepared here”. You could apparently get a haircut and a manicure and have your 1040 prepared all in one sitting! Many years ago, before I had my own office, I had considered renting a desk in an insurance or real estate office.  iI never occurred to me to rent a chair at a barbershop.

Early in my career, when I was working with my mentor Jim Gill at Journal Square (where the “Jersey Bounce” started), I came across a near-vacant room in the corner of the old bus station with large storefront windows. Inside the room was a person sitting on a folding chair at a card table with an adding machine – there was no other furniture or fixtures in the room. A hand-printed cardboard sign in the window advertised “Tax Returns Prepared Here”. What was sad was that I once actually saw a person in the room getting his return prepared.

I believe that an RTRP designation, or some similar designation, whether required or voluntary, would put the competent, experienced, and ethical previously “unenrolled” preparer, like me, on an equal footing with the CPA in the eyes of the general public. It would dispel the unfounded “urban tax myth” that a CPA is a tax expert.  CPAs would no longer erroneously “own” the tax preparation business, as the AICPA told a member it believed they did.  The mere possession of the intials CPA does not in any way, shape or form indicate that the possessor has any knowledge of the Tax Code or any experience in preparing 1040s.  

My objections to the final IRS regulations for the program have been twofold –

(1)  All individuals who wish to prepare 1040s for compensation should be subject the same requirements.  CPAs, attorneys, and “supervised employees” should not be exempt from either any testing requirement or the annual CPE in federal taxation requirement (EAs have already been tested and already maintain CPE in federal taxation).

(2)  There should be a “grandfathering” exemption from the competency test for long-time experienced preparers who have proven that they remain current by having taken the currently required amount of CPE during a multi-year “look-back” period.

I do not feel that tax preparers MUST be regulated, but I do not object to proper regulation.  If the IRS did not initiate its program I would not be calling for regulation.  Now that the court has shot down the current IRS program I will not be calling for its reinstatement, but will not fight against any eventual reinstatement. 

To be honest, licensure or regulation, even as was in effect under the IRS RTRP program, would not affect my individual practice one bit.  I would continue to operate my 1040 practice in the same way under regulation as I did prior to regulation.

I have had a PTIN since 1999, as an alternative to having to enter my Social Security number as preparer on tax returns I prepare and sign.  For at least the past 25 years I have maintained an average of perhaps 24 hours of CPE in federal taxation, as well as state tax CPE, each and every year.  While I do not want to be forced to take the RTRP competency test, having to do so would not force me to abandon my practice.

You don’t get any more “mom and pop” than my practice.  I have no employees, and never have.  I do not have an office open to the public.  For the past 10 years or so I have been working out of my home, occasionally visiting clients’ homes to pick up their tax information.  To say the requirements of the IRS regime, especially the CPE requirements, were “onerous” and “prohibitive” is ridiculous.  They would certainly not force this “pop” (no mom) out of business.

I firmly believe that ongoing continuing professional education is a MUST to remain in business as a tax professional.  I have always said that any serious tax preparer who is not already maintaining the equivalent of at least 15 hours of continuing education each year should be.  The cost of obtaining and verifying such continuing education is a basic “ordinary and necessary” (and I do mean necessary) cost of being a tax preparer.

I prefer to attend live CPE classes as a major component of my continuing education.  But I also continually “self-study”.  My annual continuing education “budget” is not large, and I know that there are much less expensive, and even free, alternatives to live seminars and workshops.

I do believe that requiring all CPE providers to be individually approved by the IRS is going too far and should not be part of any regulation, licensure, or certification program.

As a point of information, I was “self-taught” in the “art and science” of tax return preparation decades ago by way of actually preparing tax returns, initially using prior returns as a guide, under the guidance and supervision of an experienced tax professional.      

CPA Joe Kristan, a vocal opponent to IRS regulation of tax preparers, believes that the IRS regulation regime would force many “casual preparers” out of business.  I will admit that he may be correct to a degree – but I also believe that this is not necessarily a bad thing.

There are a good number of individuals out there who prepare 1040s for friends, coworkers, neighbors, and referrals therefrom for a fee, based merely on their experience preparing their own returns over the years and from reading the new IRS Pub 17 or 1040 instruction book and/or other sources.  These individuals may be sincere and feel they are providing a service to their “clients”.  Yet they may not be, and very probably are not, providing the best service to these clients.  I would consider these individuals “casual preparers”.

I am constantly hearing nonsense from my clients that they have attributed to such “casual preparers”.  If such “casual preparers” are forced out of business because of the RTRP requirements this is good for the taxpayer public and the tax preparation industry and the Internal Revenue Service.     

As I have asked in response to Joe’s assertion, would you want a “casual” electrician wiring your kitchen, or a “casual” dentist filling a cavity, or a “casual” architect designing your home?

Joe also believes that the government regulation of tax return preparers would not substantially reduce tax fraud.  Here I agree completely with Joe.  But that is not the main reason for such a regulation, licensure, or certification program

While I agree that having the Internal Revenue Service regulate tax preparers is not the best option – it is without a doubt a far superior option to having Congress legislate regulation.  My opinion of the intelligence, competence, and ability, or rather lack of intelligence, competence, and ability, of the current members of Congress is well known.

The optimal source of tax preparer regulation/licensure/certification, whether mandatory or voluntary, would be an independent industry-based organization, not unlike the AICPA or ABA, such as the National Institute of Registered Tax Return Preparers that I have proposed.

So there you have it – my opinions on the subject of tax return preparer regulation, licensure, and/or certification.

So where do we agree – and disagree?

RDF    

TAX PROS SPEAK OUT ON VOLUNTARY CERTIFICATION

Here are the reactions from fellow tax pros and tax bloggers and interested parties on my idea for a National Institute of Registered Tax Return Preparers, from “tweets” and blog posts:

CPA Joe Kristan started the ball rolling, and proved that brevity is the soul of wit, with his “tweet” –

“Constructive.”

He did go on to say in his Tuesday “Tax Roundup” at the ROTH AND COMPANY TAX UPDATE BLOG –

“Robert D. Flach proposes a voluntary Registered Tax Return Preparer designation.    I have no problem with a voluntary branding, and if Robert and other unenrolled preparers can make a brand of it, more power to them.   I don’t see it happening, though, as it would do nothing for the big franchise preparation companies, who already have their own brands.”

Dan Alban of the Institute for Justice, the attorney who won the recent court case against the IRS, supported the idea in two “tweets”–

“Great plan! Best of both worlds: certification for preparers/consumers who value it and lets people choose. 

An excellent constructive proposal from tax veteran @rdftaxpro - voluntary certification offers best of both worlds.”    

A tweet from Kim Kislak –

“Good Idea, since there is no way to stop ghost preparers. If the ruling sticks with the IRS, they will need to implement something.”

 Enrolled Agent Jason Dinesen “tweeted” –

“I agree with the premise, but there needs to be clear distinction about practice rights of the licensed vs. the unlicensed.”

Jason also posted his “Further Thoughts on Preparer Regulation” at his blog DINESEN TAX TIMES, which included the following comment on the NIRTRP idea -

“Robert Flach (aka The Wandering Tax Pro) responded to the ruling by proposing the creation of an independent organization called the ‘National Institute of RTRPs’ that would issue and oversee the RTRP license.

Robert’s idea has a lot of merit. An independent overseer of the RTRP designation would be more likely to be successful than the IRS’s lame attempt. And certainly there needs to be some way to hold the unlicensed accountable, especially in regards to continuing education.”

On the other hand, this "tweet" from CPA Peter J Reilly of FORBES.COM -

“I doubt it would be worth the effort to get it going and establish the brand.”

And Russ Fox EA put in his more than 2 cents worth on the issue with “Alphabet Soup” at TAXABLE TALK -

“While Robert Flach argues that RTRPs should be resurrected as a voluntary designation, I doubt that will happen (and I don’t see a benefit from it).”

Kelly Phillips Erb, a tax attorney, referenced my post in her interview with Dan Alban at FORBES.COM “Attorney Who Bested IRS In Tax Preparer Regulation Case Speaks Out”.  She promised to read my post after hers was published, saying “I haven’t read the piece yet because I didn’t want it to influence my post”.  I had heard no more from Kelly prior to scheduling the publication of this post.  I will let you know what she has to say in a future post.  

Trish McIntire posted “Voluntary Licensing?” at OUR TAXING TIMES in direct response to my call for comments –

“As for the voluntary licensing, which one? It would be nice to think that one of the existing tax preparer organizations will create a definitive program but I can see testing and certification programs popping up all over the place. That could be the downfall of a voluntary program; too many options and criteria. Each program would have its own designation and qualifications. Tax preparers could chose the program they like the best (easiest test, least continuing education, lowest cost). Taxpayers would be confused trying to keep the designations separate.

If I was creating the program, I would have a mandatory test and annual continuing education of at least 15 hours for anyone preparing over 10-15 returns a year. I wouldn’t have grandfathering (sorry Robert) because I’ve seen too many “experienced” preparers make mistakes. If you’re going to have a standard, everyone should have to meet the same standard no matter how long they’ve been in business or how many returns they do a year. Keep it simple.”

First I do not want to call my voluntary RTRP program “licensing”.  The term license implies government involvement and a legal requirement or distinction.  I prefer to refer to it as a “certification program”.

Trish has described the problem of voluntary designations like Certified or Chartered Tax Preparer in the past – each organization offering its own option.  As I explained in my post, the National Institute of RTRPs would only succeed if it were the only voluntary option, and its governing board included all existing tax preparer organizations and, perhaps, a representative of the IRS.

I would, however, insist on “grandfathering” (which would include those who had already passed the IRS RTRP test and been issued the designation, which I failed to mention in my initial post).  And I would recognize those who have already passed a competency test either via an education program or state licensure.  My program would also welcome CPAs and attorneys to have the opportunity to “enroll” and thereby identify their 1040 preparation ability.  It would, obviously, be totally unnecessary for EAs.

Just as a matter of logistics, it would be unwieldy and expensive to have to test a potential 400,000 individuals in a short period of time (as the IRS has discovered).

 

Thanks to all my fellow tax pros and tax bloggers for sharing their thoughts and insights on the issue.  Further comments are welcome! 

Let me end by saying this.  The last thing I want is the idiots in Congress legislating tax preparer regulation.  They have FU-ed enough things – let’s hope they keep their hands off this issue.

RDF

WHAT ABOUT A NATIONAL INSTITUTE OF RTRPs?

As you know, the US District Court has, at least temporarily, shot down the IRS tax preparer regulation regime. 

Let me offer a starting point for a discussion on “voluntary” tax preparer certification via an independent National Institute of Registered Tax Return Preparers.

I use the designation of “Registered Tax Return Preparer” only as a convenience and for comparison to the recently stuck down regulation regime.  The name could very well be “Certified Tax Return Preparer” or something else.

All individuals who prepare 10 or more tax returns for compensation would be required to register with the Internal Revenue Service and receive a PTIN (Preparer Tax Identification Number).  The only requirements for registration are that the individual has not been convicted of a financial-related felony within the past 10 years, and he/she is current with 1040 filings (but not payments).  There will be no charge for the initial registration, or at most a nominal $25 registration fee.  So that this registry remains current, PTIN-holders must renew their registration every 5 years.  There will be no further requirements, or charge, for renewal.  This will be the extent of IRS “regulation” of “unenrolled” preparers, other than as previously provided in Circular 230 (prior to the initiation of the regulation regime).

PTIN-holders can voluntarily elect to apply with the National Institute for Registered Tax Return Preparers for the designation of Registered Tax Return Preparer (RTRP). 

The Institute will be an independent non-profit organization established solely for the purpose of issuing, maintaining, and promoting the RTRP designation.  Its governing board will consist of a representative, perhaps the Executive Director or Board President, of the National Association of Tax Professionals, the National Society of Tax Professionals, the National Society of Accountants, the American Institute of Certified Public Accountants, the American Bar Association, and any other appropriate tax-related membership organization, a high-ranking representative of the Internal Revenue Service, and at least two “previously unenrolled” practicing tax professionals.

In order to be designated as a RTRP, a candidate must possess a valid PTIN and pass a competency test on federal 1040 tax law.  A “grandfathering exemption” from this test will be allowed for –

·      Tax professionals who have been consistently preparing federal income tax returns on at least a half-time basis (during the traditional tax filing season) for at least five (5) full years AND who have successfully completed a total of 48 hours of continuing professional education (CPE) in federal taxation in the 3-year period (36 months) prior to applying for the designation.

·      Tax professionals who have been licensed or certified to prepare income tax returns under a required state program that includes a competency test.

·      Individuals who have successfully completed a certificate or certification program in federal income taxation offered by a qualified educational institution or qualified membership organization that includes testing.

 

The "grandfathering" period for applicants shall last for the first three (3) years of the program.

RTRPs must renew their designation every three (3) years by submitting proof of completion of a total of 48 hours of CPE in federal taxation during the three-year period, with at least 8 hours each year.  The 48 hours must include three (3) hours of “tax updates” per year (a total of 9 hours) and one (1) hour of “ethics update” within the three-year period.   

There have been many attempts at voluntary certification of tax return preparers – creating a designation for tax preparers (Certified Tax Preparer, Chartered Tax Preparer, etc) – over the years.  But none have been successful because they were offered and maintained by individual membership or CPE organizations and were not universally accepted by the industry.  Creating a National Institute of RTRPs, with representatives of all industry “players” to maintain the designation, should correct this.

What do you think?

RDF

AND THE BEAT GOES ON . . .

As expected, even though it is a Saturday the tax blogosphere was a-BUZZ with the word that the court has closed down the IRS tax preparer regulation regime.

Joe Kristan is as expected, a pig in reality tv over the court decision.

“I am glad that the IRS lost in court.  I have hoped the regulations would be overturned, and I thought they should be illegal, but I am not a master of the law covering IRS regulatory problems.  Regardless of whether they are legal, I have always thought the regulations unwise.”

Russ Fox reports the death of regulation (for now) and suggests the unthinkable – that the idiots in Congress might legislate regulation -

“While the IRS is certain to appeal, it appears that the RTRP program is dead (at least for now). It will likely take an act of Congress to expand the IRS’s regulatory power to unenrolled preparers. And that’s not likely to happen in the current Congress.”

There was also a lively discussion on various aspects of the regulation regime on Twitter.

“Of course it’s necessary {CPE for tax pros – rdf}!  This stuff changes every year! If you don’t stay educated don’t call yourself a tax pro. Tax specific CPE should be required from attorneys & CPAs as well. A JD does not endow you with perpetual tax knowledge.” - Mariette Knoblauch, CPA

“CPE requirements are a Must! Sadly, there so called tax pros who don't even have basic fundamental knowledge of tax prep.

The exam is useless. I would much prefer an independent Org to administer required CPE's for unlicensed preparers.” - Alex P. Louis, EA

“There's another option - voluntary certification (rather than regulation) by either the IRS or an independent group.” - Dan Alban

“And no monopoly to one for-profit company. Resent being forced to give $ to Prometric.” – Mariette Knoblauch, CPA.

A follow-up “tweet” from Dan led me to a September 2012 quote from Chuck McCabe, chief executive of Richmond, Va.-based Peoples Income Tax and The Income Tax School -

“The new requirements will cause an exodus of tax preparers, who will stop practicing rather than take the test and complete annual education”

How many times must I say that CPE is not an excessive or prohibitive requirement – it is a basic and very necessary cost of doing business, regardless of whether or not it is required! 

NATP offers two days, 16 hours, of CPE, which includes the 3 hours of updates and 2 hours of ethics, at many locations throughout the US (so there is no need to incur costs for travel or lodging) in November-January.  The cost of the 2 days for 2012 was $349.  I expect other providers offer less expensive alternatives.  So if that is $3.50 per return if spread over 100, $1.75 if spread over 200, or a little over $1.00 for 300 clients.     

I cannot see anyone who is making a good living as a tax preparer leaving the business because of a $64.00 annual fee and a one-time test. 

The problem of forcing preparers out of business comes from the IRS insisting on not postponing the deadline for testing with over 300,000 PTIN-holders who have to sit for it, or its insistence on not allowing grandfathering.  While I do not want to waste time and money on the test if I do not have to, I will take it if the alternative is giving up my business. 

Dan also “tweeted” –

“It is expensive. Taking CPE classes is not the only way to stay up-to-date on IRS regs. Many people learn better from reading.”

This is true – self-study.  But there are options available to receive credit for self-study.

Trish McIntire joined me in shooting down the argument that the cost of regulation would in itself force serious preparers out of business in her post “Licensing Pity Party” (highlights are mine) -

“This lawsuit involved three tax preparers who claimed in part that the costs of the new tax preparer regulations will force them to stop preparing returns. Bovine excrement! The preparer costs are a onetime testing fee of $116, an annual PTIN registration of $64.25 and the costs of 15 hours of continuing education. How much does the CPE requirement cost? That depends on the courses used. In 2012, I paid $428.50 for 32 hours of course work. That averages to $13.39 an hour. I could have spent less. I’ve seen free CPE and companies that offer packages under $10 an hour. I’ve also spent more for special courses I wanted to take. But working from an average of $15 an hour for 15 hours equal $225 a year for continuing education. So the plaintiffs in Loving vs. the IRS contend that a onetime cost of $116 and an annual cost of about $300 will force them out of the tax prep business. Sorry, but if your business can’t survive a $300 expenses (which can be passed on to clients) then you should really consider not being in that business. Sorry!

But should the continuing education cost really be a new expense for any tax preparation business? How do the plaintiffs and thousands of others prepare for the tax season? How do they keep up with law changes and paperwork requirements?

I understand filing this lawsuit under strict libertarian principles. But part of the judge’s ruling is that this law will cause “irreparable injury” because 2 of the plaintiffs would have to close their businesses. Closing a business for $300 a year plus a onetime testing fee is bogus. Especially when some of the $300 should have been expenses the business was already paying.”

So what do you think?

RDF

MORE ON THE TAX PREPARER REGULATION COURT CASE

The issue in Loving v. Internal Revenue Service, 12- cv-00385, U.S. District Court, District of Columbia, the case which put a temporary end to the IRS return preparer regulation regime, appears to be one of preparation vs practice.  The IRS can regulate “practice” before the IRS, but preparing a tax return is NOT practice before the IRS.

A news item from Bloomberg explained -

“The licensing rules are invalid because the IRS stretched a law allowing it to regulate people who ‘advise and assist persons in presenting their cases’ before the agency to cover tax preparers, U.S. District Judge James Boasberg in Washington wrote in a decision yesterday.”

The Judge observed that, “Filing a tax return would never, in normal usage, be described as ‘presenting a case’.”

I do agree that there is a big difference between “practicing before the IRS” and “preparing a tax return” - and that “preparing a tax return” is NOT “practicing before the IRS”.  I had discussed this argument here in the past in relation to the exemption from CPE and testing for CPAs and attorneys.  The question is whether the IRS has the authority to regulate preparing a tax return.

The regulation of preparers began as a perceived need by the IRS for a central registry to identify all tax return preparers.  In the past, many, but not all, preparers had applied for a PTIN to use as an alternative to entering their Social Security number on tax returns they prepared.  I was one of these preparers.  Some preparers had an IRS “CAF” number, which was related to filing a Form 2848 (Power of Attorney and Declaration of Representative) or Form 8821 (Tax Information Authorization).  The CAF number represented a file that contains information regarding the type of authorization that taxpayers have given representatives.  I also had a CAF number.   

The desire for regulation was further encouraged by a Government Accountability Office (GAO) undercover study which resulted in a report to Congress titled “Paid Return Preparers: In a Limited Study, Chain Preparers Made Serious Errors”.  The GAO sent undercover agents with two different tax scenarios to a total of 19 offices of 5 “fast-food” commercial tax chains, including H+R Block, in a metropolitan area. In only 2 instances was the correct refund calculated, but all 19 returns contained errors.

At the time someone within the IRS system, perhaps a member of its “civilian” advisory board, pointed out that a barber needs a license, but a tax preparer does not.

I do not question the IRS need to “register” all tax return preparers.  The issuance of a PTIN, with or without an annual registration fee, accomplishes this without causing any real problem or inconvenience.  Background checks and fingerprinting may be going a bit too far (thankfully the fingerprint requirement has been tabled), but requiring that preparers remain current in their own tax filings (but not payments) may be appropriate.  I do not think the IRS needs Congressional authority to “register” tax preparers.

The “plaintiffs” in this case, three previously unenrolled tax return preparers, allege that the IRS return preparer regulation regime will force them to go out of business because the requirements for becoming a RTRP are “prohibitive”.  To me this is garbage.   Spending $64 a year for a registration fee and perhaps $300-$500 a year on CPE, which any serious tax return preparer should be doing anyway, is certainly not “prohibitive” or even excessive.  (What I do find perhaps prohibitive is forcing tax preparers to spend many thousands per year for flawed tax preparation software in order to be able to file electronically)  Again – garbage.    

Some of those who oppose the regulation regime say that it will force “casual” tax preparers out of business.  As I have said before this is not necessarily bad.  Do you want a “casual” dentist filling your cavity, or a “casual” lawyer defending you in court, or even a “casual” barber cutting your hair?

The ultimate question is not if the requirements are too excessive.  It is whether the IRS has the authority to force tax return preparers to pass a test and take required CPE to remain in business 

 

I do not want to take the test (although I would if forced to) - so if this Court decision is the final word (which I do not think it will be) and it relieves me from having to take the competency exam I will not complain.  But if the decision is the final word, and it forces the idiots in Congress to ultimately legislate regulation, the result could be much worse than the current regime.

 

RDF

YOU COULD HAVE KNOCKED ME OVER WITH A FEATHER!

You could have knocked me over with a feather!

The first thing I did when I returned home on Friday night from a lunch with former co-workers from my days at the Art Center in Summit NJ (we have remained friends for decades – and get together for each of our birthdays) was check my email.  There was a message that a fellow “twit” (and fellow tax pro and tax blogger) had mentioned me in a “tweet” with a link to a news item. 

Here is where the link took me – “IRS Loses Lawsuit in Fight Against Tax Preparers”.  And here is what I learned -

“A federal judge on Friday barred the IRS from imposing a series of new regulations, including a competency exam, on hundreds of thousands of tax preparers.

U.S. District Judge James Boasberg in Washington ruled against the IRS in favor of three tax preparers who filed suit last year with the help of a libertarian legal group, the Arlington, Va.-based Institute for Justice.

The Institute for Justice argued that the IRS lacked the statutory authority to impose the regulations and said they would put tens of thousands of mom-and-pop tax preparers out of business, because the regulations were onerous and create a competitive disadvantage to the attorneys and CPAs who were exempt.

The judge's order includes an injunction that bars implementation of the regulations, which have been put in place on a piecemeal basis.

An IRS spokesman declined comment Friday on the judge's ruling.

The government can seek to appeal.”

Elsewhere on the web I found this quote from the Court decision –

“With an invalid regulatory scheme on the IRS's side of the scale and a threat to Plaintiffs' livelihood on the other, the balance of hardships tips strongly in favor of Plaintiffs. Finally, the public interest would be served by a permanent injunction because the IRS's new Rule is ultra vires [beyond its power].”

Here is what I “blogged” about the Institute for Justice’s initial complaint back in October of 2010 –

 

In “Institute for Justice Speaks Out On IRS Power Grab” at THE ROTH AND COMPANY TAX UPDATE BLOG he refers to statements by Dan Alban, a staff attorney at the Institute for Justice in Arlington, Virginia who has filed comments with the IRS on behalf of the Institute opposing the proposed licensing requirements.

In “The IRS and the Latest Licensing Outrage” at DAILY CALLER Alban says-

“This scheme will disproportionately hurt small tax-return preparation businesses and independent preparers, many of whom may be forced out of business.”

Why do those opposed to tax pro registration continue to say the costs of the new regime will be prohibitive and hurt small tax return preparation businesses and independent preparers, forcing many out of business? And that the regime will increase the cost of tax return preparation services? I wish they would explain.

You don’t get any smaller or more independent than me and my practice. As I have said over and over again the costs are minimal – and hardly worth passing along to clients. $64.25 per year ain’t going to break me – nor will a nominal one-time $100-$200 for the test.

 

{As an aside, the only thing that would possibly force me out of business is being required to submit all my returns electronically using the current system of expensive and flawed tax preparation software.}

Speaking from my specific individual situation – I would, to be honest, not be upset if there were no regulation of tax preparers. I have been operating profitably and happily for 39 years without regulation, and would just assume continue that way for my last 11 years. If regulation had not been proposed by the IRS I certainly would not be campaigning for its institution. But if it is to become a fact of business life I can see how it does have merit and provide benefits to preparers, taxpayers, and the IRS.

Now that it is in place, my only real complaints are about having to take a test after 39 years of practice without incident to show that I know what I am doing, and having to sit through 2 hours of “ethics” each year. Having to take the initial competency test is a PITA, and 2 hours of redundant ethics “education” annually is a waste of time – but it is nothing I cannot handle. Many CPE offerings had been including 2 hours of ethics for a few years now – so I have already been wasting my money.

Truth be told, regulation does not affect my practice one way or another – other than as a minor inconvenience. I am not looking to increase or expand my 1040 preparation business – on the contrary I am looking to “thin the herd”. And if I did need more clients I could easily get them by telling my existing ones I was accepting new work. I already attend more than 15 hours per year in CPE classes in federal taxation. And I am honest and ethical.

 

Since writing the above post I have become more “militant” in my opposition to the initial competency test.  It really does not prove anything – and, as I have said before, by the time one takes the test based on prior year tax law the idiots in Congress can change everything and the exam will have demonstrated that the taker is competent in obsolete tax law.  I support doing away with the test altogether, or, at the very least, providing a “grandfathering” exemption for long-time experienced tax pros like me.  I know, as everyone keeps telling me, that the test would not be a challenge for me, but I just don’t want to waste the time and money on it after over 40 years in the business.

I wholeheartedly support the annual CPE requirement (except for the annual ethics preaching), and feel it should be expanded to include CPA, attorney, and “supervised employee” PTIN-holders.  To repeat (for about the 20^th+ time) – if a serious tax preparer is not already taking at least 15 hours of CPE in federal taxation each year he/she certainly should be.  Much more than the competency test, CPE indicates that a tax preparer is knowledgeable and remains current.

As I have said a number of times in the course of the debate on tax return preparer regulation, I would much rather have the IRS institute and oversee the regulation than have it legislated by the idiots in Congress.  As I have also said many times before – the idiots in Congress can fuck up a High Mass!  My preference is, however, having the regulation regime administered by an independent industry-based non-profit organization, similar to the AICPA and the ABA.  An American Institute of Registered Tax Return Preparers if you will.

I doubt that this is the end of the story.  I do expect that the IRS will probably appeal.  Hey, maybe the appeals will take 8 years and I can retire after 50 tax seasons without having to waste time and money on a useless test!

RDF