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