THE “EA” DESIGNATION IS NOT YOUR ONLY CHOICE

Did you know that EA is not the only initialed designation that tells people the person with the initials is competent and knowledgeable and current on 1040 tax issues?  There is also -

Accredited Tax Preparer® (ATP) - The ATP credential is for practitioners who have a thorough knowledge of the existing tax code and the preparation of individual tax returns. Their expertise covers comprehensive 1040 issues (including supporting schedules, self-employed returns, etc.) and ethics. 

Accredited Tax Advisor® (ATA) - The ATA credential is for practitioners who can handle sophisticated tax planning issues, including planning for owners of closely held businesses, planning for the highly compensated, choosing qualified retirement plans and performing estate tax planning. Their expertise covers tax returns for individuals, business entities, fiduciaries, trusts and estates, as well as tax planning, tax consulting and ethics.  

These designations are issued and maintained by the Accreditation Council for Accountancy and Taxation® (ACAT).  ACAT “was established in 1973 as a non-profit independent testing, accrediting and monitoring organization. The Council seeks to identify professionals in independent practice who specialize in providing financial, accounting and taxation services to individuals and small to mid-size businesses. Professionals receive accreditation through examination and maintain their accreditation through commitment to a significant program of continuing professional education and adherence to the Council's Code of Ethics and Rules of Professional Conduct.  ACAT programs are governed by a Board of Directors that includes practitioners, educators and a public member. “

FYI, as part of the voluntary IRS Annual Filing Season Program   holders of the Accredited Tax Preparer (ATP) credential issued by the Accreditation Council for Accountancy and Taxation –

(1) are exempt from the Annual Federal Tax Refresher Course and testing requirements,

(2) automatically qualify for the AFSP - Record of Completion (with a valid PTIN, CPE and Circular 230), and

(3) as Record of Completion holders, will be included in the IRS public database of tax return preparers 

The Council’s website identifies the 3 Steps to Earn an ACAT Credential -

1. Register for an ACAT Exam: After registering you will receive an email with details on scheduling your exam date and time.  If you are scheduling your exam late in the testing window there may be limited testing availability.  

2. Pass the Exam: Get the Study Materials and Locate your PSI Testing Site.

3. Earn Your Credential: After passing the ACAT exam you will receive information on how to activate your credential.

For more information on these designations, visit www.acatcredentials.org or contact ACAT at 888-289-7763 or email: info@acatcredentials.org. 

TAFN

AFSP - BOON OR BUST?

According to the “Return Preparer Office Federal Tax Return Preparer Statistics” page at www.irs.gov, as of September 1, 2017 there were a total of 722,662 “individuals with current Preparer Tax Identification Numbers (PTINs) for 2017).  When you subtract out the Enrolled Actuaries and Enrolled Retirement Plan Agents that leaves 721,549 actual tax return preparers.  This number consists of 296,082 “enrolled” PTIN-holders – Enrolled Agents, CPAs and attorneys – leaving 425,467 “unenrolled” or “un-credentialed” preparers.  Of these 54,485, or less than 13%, have elected to participate in the IRS’s Annual Filing Season Program (AFSP).

 

So, this relatively new program has not been very successful.  I have always believed that participation in the AFSP does not provide any real value to tax professionals, and it appears I am not alone in my belief.

 

There are so many things wrong with the AFSP.  For example -.

 

1. The program does not provide those who meet the requirements with an identifiable credential or designation, with accompanying initials that the recipient can use in advertising and promotion to identify their competence and currency in 1040 preparation. Those who pass the test and take the CPE are merely placed on a list of IRS “approved” preparers and given a plaque to hang in their office.

 

2. The program does not call for an initial competency test. Instead, participants must pass an annual “comprehension test” upon completion of the required six-hour “federal tax filing season refresher course.”

 

3. The public database, if it will actually be used by taxpayers seeking professionals (I doubt it will be), is large and confusing if it is merely an alphabetic listing of all “record of completion” preparers mixed in with others of “recognized credentials,” some which nothing to do with 1040 preparation (CPAs and attorneys), and “higher levels of qualification and practice rights.”  To be done correctly, the database should contain all PTIN-holders, since all individuals who have a valid PTIN are truly "approved preparers," listed alphabetically by category of designation. 

 

4. The new program should not be allowed to deny unenrolled tax preparers who chose not to participate the right to represent their clients before the service during an examination of a return that they have prepared and signed. All tax preparers with a valid PTIN must have the right to defend and explain, or assist their clients in defending and explaining, the tax returns they have personally prepared during the audit process.

 

So my question for fellow tax professionals this issue is –

 

Have you received any new clients from participating in the Annual Filing Season Program?

 

In the past when I asked this question at another venue all the answers I received were “no”.  Having a “record of completion” did not in any way help the practice of those who replied.

 

I also want to hear your thoughts and comments on the AFSP in general.  Email me at rdftaxpro@yahoo.com with THE TAX PROFESSIONAL QUESTION.

THE LAST WORD -

FYI - I have created a new Classified Advertising Page on my THE TAX PROFESSIONAL website.  Check it out.

 

TAFN

 

 

 

 

WHAT DO YOU THINK?

While doing research for a book I recently came across “The History of Enrolled Agents(E.A.)” from Robert Normandie EA & Associates.  Included at the end of the piece, which discusses the evolution of today’s Enrolled Agent designation, is “an interesting note concerning the E.A. exam”.  RN and Associates tell us (are mine) -

“The exam was originally written by American Society of CPA's.  It has become a controversy into itself. The controversy is its failure rate. Many critics think that the test was stacked so that very few would pass it regardless of their background. They are quick to point out that most CPA's would fail the test, lacking the necessary tax knowledge. When you look at the logic behind that, it may make sense. Eliminate the completion from the beginning. Some critics go as far to say they think there was collusion between the IRS and the CPA. IRS Agents, after a period of time in service are exempt from taking the test. Again the competition is eliminated. Regardless of whom you believe, the IRS is committed to make change, to make it more fair for all who take it.”

I am not a conspiracy theorist, and I do not buy the IRS working in cahoots with the AICPA.

But did the AICPA, on its own, write the Special Enrollment Examination so that it would be too difficult, and seriously limit the number of eventual Enrolled Agents, true qualified and recognized 1040 experts, to be available to compete with CPAs for tax preparation business – an area that in the opinion of the AICPA, “the public already believes CPAs to own" (click here and read the 4th "starred" item).  It certainly would not surprise me if the AICPA did.

 

And I would also certainly not surprise me if the AICPA was behind the various state laws that “prohibit Enrolled Agents from using their credential when representing taxpayers or advertising for potential clients”, which the recently introduced “Enrolled Agents Credential Act” (HR 2313) hopes to do away with. (see “Bill Would Let EAs Promote Themselves Everywhere").

Can anyone confirm that the AICPA did indeed write the SEE?

RDF

MY FINAL WORD ON CPA VS EA OR RTRP

The process of becoming a Certified Public Accountant (CPA) is a difficult one.  While the specific requirements vary slightly from state to state, in general in order to become a CPA one must meet an education requirement (have a bachelor’s degree with a minimum number of credits in accounting subjects) and an experience requirement (“apprentice” with a CPA firm), must pass a difficult 4-part exam (Taxation and Business Law, Audit, Business Concept and Environment, and Financial Accounting and Reporting), and must maintain a minimum number of hours of continuing professional education (CPE) each year.  A person who receives the designation CPA has certainly accomplished a difficult feat and should be congratulated.

Being granted the designation CPA allows one to certify financial statements.  CPAs are also permitted to “practice” (represent taxpayers) before the Internal Revenue Service.   

The CPA exam is a test of one’s ability to prepare, audit, and certify financial statements.  I have recently been told by a CPA candidate that 20% of the questions on one of the four parts of the exam deal with “individual income taxes”.  So 5% (20% x 25%) of the CPA exam deals with 1040 issues.  Passing the CPA exam does not provide any material indication of one’s ability to prepare 1040s.

A CPA must take up to 40 hours of CPE each year.  None of the 40 hours must be in federal individual income tax topics (“No specific subject areas are required”).  Merely having the initials CPA after one’s name is no indication that the person remains current in 1040 taxation.  

A CPA is not automatically a 1040 expert.  Having the initials CPA after one’s name by itself is absolutely no indication that the person is competent or current in 1040 preparation.

The Enrolled Agent (EA) Special Enrollment Examination is a 3-part (Individual, Business, and Representation, Practice and Procedures) test of one’s ability to prepare federal income tax returns and one’s ability to represent taxpayers before proceedings of the Internal Revenue Service.  The Registered Tax Return Preparer competency exam was a test of one’s ability to prepare federal individual income tax returns (“the completion of Form 1040 series returns including basic related schedules and forms”).  Passing either the Special Enrollment Examination or the RTRP competency test does provide an indication of one’s ability to prepare 1040s.

An EA must take 72 hours of CPE every 3 years, with an annual minimum of 16 hours, in federal taxation or federal tax related matters, such as accounting, tax preparation software or ethics.  An RTRP was required to take 15 hours of CPE each year, which include 2 hours of ethics, 3 hours of federal tax law updates, and 10 hours of other federal tax law.  Having the initials EA or (for now) RTRP after one’s name is a clear indication that the person remains current in 1040 taxation. 

Many CPAs are trained and experienced, and extremely competent and current in 1040 preparation.  But it has absolutely nothing to do with the initials CPA.  It is because of the specific education, training, and experience of the individual.  A CPA is not automatically a 1040 expert, but a specific CPA may be a 1040 expert.

If a CPA were able to earn the designation of RTRP it would clearly identify that individual CPA as being competent and current in 1040 preparation.

And BTW, surveys have proven that the fees for preparation of series 1040 tax returns charged by CPAs are much higher than the fees charged by EAs and “previously unenrolled” preparers.

‘Nuff said. 

TAFN

CONTINUING A DISCUSSION ON THE CURRENTLY DEAD IRS RTRP PROGRAM

ACCOUNTING TODAY recently published my editorial “What the IRS Should Do About the RTRP”.

 

I had hoped to begin a serious discussion among professionals on my proposal for a voluntary IRS-sponsored RTRP program.  While some intelligent and “on topic” comments were submitted, unfortunately the discussion in the comments section soon got out of control, devolving into a totally unrelated “mucking fess”.  I must accept some of the blame for this “devolution”, as I, myself, mistakenly went off on a tangent in a couple of my early comment responses.

 

I would like to use this post to address some of the intelligent “on topic” comments that were submitted.

 

·  I agree that, going forward, the Internal Revenue Service should not be permitted to charge tax preparers a fee for renewing their PTIN.

 

And now that there are no requirements for maintaining one’s PTIN there should be no more annual renewal.  Perhaps the PTIN should be renewed every 3 or 5 years, with no fee, so that those who have retired, no longer prepare 1040s for compensation, or have gone to their final audit can be removed from the registry.    

 

I originally obtained my PTIN years before the institution of the Service’s mandatory RTRP regulation regime.  It was originally offered to tax preparers as an alternative to using their Social Security number as identification when signing tax returns.  I paid no fee for applying for my PTIN, and I was not required to apply for renewal annually.

 

The Internal Revenue Service does not charge for applying for an Employer Identification Number (EIN) or an Individual Taxpayer Identification Number (ITIN), and the Social Security Administration does not charge for applying for a Social Security Number.

 

If the IRS continues the RTRP designation as a voluntary program the costs of this program should be covered by an appropriate RTRP application and renewal fee.  The PTIN application and renewal should not be used to raise funds for the voluntary RTRP program.

 

As for the fee collected by the IRS for PTIN applications and renewals for 2011 through 2013, while at the time the fee may have been appropriate, since the purpose of the fee was to fund the mandatory RTRP regulation regime, and that regime no longer exists, once the Court has upheld the decision in Loving v IRS tax preparers who paid this fee should be able to apply for and receive a refund.

 

If the IRS decides not to continue the RTRP designation as a voluntary program, whether in conjunction with its EA designation or not, I believe that those who were forced to pay for taking the competency exam under the regulation regime should also be able to apply for and receive a refund of the exam fee.

 

· While I support the contention of the plaintiffs in Loving v IRS that the Internal Revenue Service does not have the authority to institute a mandatory regulation regime for all tax return preparers, and support the decision in Loving v IRS, I do not agree that the cost of mandatory CPE for tax return preparers is “prohibitive”.

 

It has always been my belief that if a serious tax return preparer does not already take at least 15 hours of continuing professional education in federal income tax topics, including 1040 updates, each year he/she certainly should be.  It is vital for serious tax preparers to keep up-to-date on the changes to the US Tax Code, Tax Court decisions, and IRS rules and regulations – and verifiable CPE is the only way to confirm that this is being done.

 

Any voluntary certification program for tax return preparers must include mandatory annual CPE.

 

My only objection to mandatory annual CPE involves the requirement to sit through 2 hours of ethics preaching each and every year.

 

I have said time and again - If I am a crooked tax preparer sitting through 2 hours of ethics preaching ain’t going to turn me honest!

 

At most a voluntary designation program should require perhaps 2 hours in the first year a person receives the RTRP, or whatever designation, and 1 hour of updates every two or three years thereafter. 

 

I have found that, because of the 2-hour annual ethics preaching requirement for EAs, CPAs, and other financial professionals, and for a while RTRPs, almost every 1 or 2-day seminar or workshop, regardless of the main purpose or topic(s) of the event, includes 2-hours of ethics.  I have been told by some education providers that they must include the 2-hours of ethics in the program in order to maintain a profitable level of attendance.  So, as is true in my case, a tax pro is often forced to pay for and sit through 4 or even 6 hours of ethics preaching in a year – a waste of time and money! 

 

If there is any “required” expense of a tax preparation practice that could be called “prohibitive” it is the cost of the initial purchase and annual updates of tax preparation software.  In order to comply with the electronic filing mandate all paid tax preparers must purchase flawed and expensive tax preparation software to be able to electronically file 1040s, unless the preparer can get all of his/her clients to “opt out”, as I do.

 

The electronic filing mandate for paid tax preparers should be limited to those who use tax preparation software, as is the case, surprisingly, with New York state tax returns.

 

And, to reprint one of my more appropriate comment responses from ACCOUNTING TODAY -

 

·      I agree that if there must be a "mandatory" regulation of all tax return preparers, which I do not believe there should be, the Internal Revenue Service should certainly not be the agency to administer this regulation. This is one reason the Court was correct in shutting down the RTRP regulation regime.

 

However, I do believe that the IRS can offer a "voluntary" secondary tax professional designation in conjunction with the current Enrolled Agent designation in the manner I have discussed in my editorial.

 

Along these lines, I do not believe the IRS should have to approve individual CPE providers in order for their individual education programs be accepted as satisfying the CPE requirement, as had been the case in its RTRP regulation regime. The current method for accreditation of CPE providers is sufficient.

 

I still believe that the absolute best option for administering either a mandatory or voluntary certification program is an independent industry-based organization.

 

·      I do not mean to imply that the RTRP competency test was a "walk in the park". It obviously required study and preparation and knowledge of the Tax Code. However, because passing the test was required of all "previously unenrolled" tax preparers it had to be basic and general enough for all serious and experienced tax preparers to be able to pass it in one or two tries.

 

The Enrolled Agent "Special Enrollment Examination" is certainly substantially more difficult and comprehensive than the RTRP competency test. Its purpose is to certify a higher level of tax knowledge and competence and not to prevent individuals who do not pass from preparing 1040s. If the voluntary RTRP designation is to be part of a two-tiered program partnered with the EA designation the required examination must be more demanding to maintain the integrity of the EA component.

 

Perhaps the current Special Enrollment Examination could be divided in two, with each half enhanced. The RTRP portion would deal with 1040 preparation issues and the EA portion would deal with more advanced preparation issues, and perhaps entity taxation, and representation issues.

 

So let the discussion continue.  What do you think about what I have said in this post? 

 

At least in this “venue” I can moderate the comments!

 

TAFN   

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