Fellow
tax blogger Kay Bell, who I like to refer to as “the yellow rose of taxes” has
brought to our attention the latest development in the Internal Revenue Service’s
attempt to regulate/license paid tax return preparers.
The
Service’s required RTRP program was shot down by the U.S. District Court in
Loving v US because, according to the Court, the IRS does not have the
authority to regulate tax professionals.
Kay
tells us, as the title of her post states, a “House bill would give IRS authority to regulate tax pros”.
HR
1570, the “Taxpayer Protection and Preparer Fraud Prevention Act of 2013”, which
is only 3 pages in length, does not go into detail on how to regulate tax pros. It merely changes the Tax Code provide
authorization, and pretty much gives the Secretary of the Treasury, and
therefore the IRS, carte blanche in establishing the details of regulation/licensure.
The
bill provides the authority the Court says is lacking by adding the following
to the current US Tax Code –
“The Secretary of the Treasury may –
(A)
regulate tax return preparers
who do not practice as representatives of persons before the Department of the
Treasury; and
(B)
before licensing or certifying
a person as a tax return preparer, require that the person demonstrate –
(i) good character;
(ii) good reputation;
(iii) necessary
qualifications to enable the person to provide to persons valuable service; and
(iv) competency
to perform the functions of a tax return preparer.”
It is funny that a body such as Congress, without
good character, wants to make sure we tax preparers have good character.
The Senate would also consider providing the
needed authorization. As Kay points out,
in its paper “Simplifying the Tax System for Families and Businesses” the Senate
Committee on Finance says about the regulation of tax return preparers -
“Due to tax law complexity,
taxpayers increasingly rely on third parties to prepare their returns, thereby
increasing their exposure to preparer misconduct or error. In 2011, the IRS started regulating tax
return preparers by requiring registration and imposing minimum competency
standards. The District Court of
Washington, DC recently ruled (Loving, No. 12-385 (D.D.C. 1/18/13)) that the
IRS lacks the authority to regulate tax return preparers. If the IRS does not prevail in its appeal of
the Loving case, it will lose an important tool to increase tax compliance and
protect taxpayers from unethical tax return preparers.”
Before
I go any further I want to take exception to the statement “taxpayers increasingly rely on third parties
to prepare their returns, thereby increasing their exposure to preparer
misconduct or error”. Taxpayers increasing reliance on
professional tax preparers results in more accurate and correct tax returns
being filed. There would be much more
error if taxpayers prepared their own returns or simply relied on tax
preparation software!
As
stated here in previous posts, I would accept a voluntary IRS-sponsored RTRP
regime, as suggested by the Court, as perhaps part of a two-tiered
certification that would combine the new voluntary RTRP designation and the
existing EA designation into a two-tiered certification program. A preparer would first apply for and be
granted the RTRP designation by way of a test that is limited to tax preparation
(perhaps more involved than the current basic open-book basic test). After a year or two that person can then take
a second test, with added emphasis on taxpayer representation issues and other
advanced topics, to become an ETRP (Enrolled Tax Return Preparer – the old
Enrolled Agent). The ETRP designation would
replace the RTRP (or whatever) designation.
One would not be both an RTRP and ETRP – but either an RTRP or an ETRP.
I
still believe 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 I have proposed.
I have
always said that 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 members
of Congress is well known. As I have
said, HR 1570, thankfully, does not dictate the details of regulation/licensure,
leaving that to the Treasury Department.
However we do not know what would be in any Senate bill. Hopefully it would just echo HR 1570.
I do
not support HR 1570. I do not want
Congress to give the IRS the authority to institute its required RTRP program. I would hope that the decision in Loving v
IRS is upheld and that the IRS either continues the RTRP program as a voluntary
one or gives up trying to regulate preparers so that an independent
industry-based program can be instituted.
If the
IRS wins, one way or the other, I would still campaign for a “grandfathering”
exemption from the initial competency test for long-time preparers like myself,
and to see that CPAs, attorneys, and “supervised employees” thereof, are NOT exempt from
testing, unless covered under grandfathering, or mandatory annual CPE in
taxation.
Kay
ends her post with a reference to my post TAX RETURN PREPARER REGULATION, LICENSURE, AND/OR CERTIFICATION, which she calls “a good synthesis of what's at stake and what should be done”. Thanks, Kay!
TAFN
