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!