HERE WE GO AGAIN

 

Once again, the issue of tax preparer regulation is in the news.  According to ACCOUNTING TODAY “Congress introduces tax preparer regulation bill”.

I do not oppose requiring PTIN-holders to complete a minimum number of CPE hours in federal income taxation to maintain their PTIN.  In fact, I support this.  It is vital that every sincere and competent paid Form 1040 tax preparer take CPE in income taxation each year to keep up-to-date on tax law changes.  I have taken on average at least 16 hours of CPE in federal income taxation each year consistently for decades. 

I do oppose requiring all paid tax preparers to take a government-administered competency test, either one time or annually, to maintain their PTIN and continue to be allowed to prepare tax returns.  I would only support a one-time initial competency test if there was a grandfathering exemption for paid tax preparers who have been consistently preparing 1040s for a fee for at least 5 years. 

After 50 tax seasons of preparing 1040s without incident I have no intention of taking a test now to prove I know what I have been doing for the past 50 seasons.

What I would like to see is a new voluntary tax preparation credential, either a part of the current IRS Enrolled Agent system or, preferably, created and administered by an independent organization.  See my editorials “What the IRS Should Do About the RTRP” and “It’s Time for Independent Certification for Tax Preparers”.

So, what do you think?

TAFN

THE THIRD ANNUAL REVIEW OF REQUIRED CPE FOR NEW YORK STATE TAX PREPARER REGISTRATION RENEWAL

So, a week ago I finished sitting through the, thankfully, free  4 CPE hours (4 50-minute hours) of webinars that are required as part of my annual registration as a preparer of NY state income tax returns.

FYI - Click here to read my “review” of last year’s required NYS CPE and here to read the “review” of the 2015 CPE.  In both reviews I stated that the 3 1/3 hours I spent were a total waste of my time.

I first “enrolled” in “New York State Updates and Department Messages” –  which were in the past updates of the previous year’s tax filing rules and NOT the upcoming current one (i.e. the information reported last year at this time was for 2015 returns, the returns prepared during the tax filing season that ended in April of 2016, and not for 2016 returns).  Like last year, instead of an actual “webinar” it was a PowerPoint-like series of slides.  At the end of a series of slides I was asked multiple choice questions.  If I answered correctly a check mark appeared.  If I entered a wrong answer I was told so in a box, which also provided the correct answer.  I could then select the correct answer and could proceed to a new section.  As I said in the past, I really do like this method. 

This year I needed to complete three (3) required courses and one (1) course chosen from among 4 optional topics. The required topics were –

1. New York State Updates and Department Messages– 45 minutes

2. Tax Preparer ID Numbers and Permissions – 40 minutes

3. Standards of Conduct and Penalties – 75 minutes (of course the longest was redundant ethics)

For my optional topic I choose NY State Subtraction Modifications scheduled for 40 minutes.

Like the past two years, the entire process was a total waste of my time.  While it appeared the update session may have been about 2017 returns, there was minimal information provided that actually applied to the NYS tax returns I prepare (only IT-201 and IT-203).  There was relevant information on various tax credits, but only one applied to my clients.  It appears that there is nothing new relating to the actual returns I prepare for my clients.  The other 2 required sessions were truly redundant – the same information from last year.  The optional topic was truly basic.  I learned absolutely nothing new by sitting through these sessions.

Some good news.  While I will not tell you the exact amount of my time that was wasted, I will say that it was much less than the “advertised” 200 minutes.  So, thank God for small favors.  I did “satisfactorily” complete all the required CPE, and was able to print certificates for each class.

Every January as part of the NJ chapter of NATP’s “Famous State Tax Seminar” there is a session on New York State tax updates led by NY preparer Kathryn Keane.  It is an excellent presentation, and actually covers what is new for the upcoming tax filing season for NYS tax returns, and allows for questions from participants.  But, of course, this presentation does not satisfy the state requirement. 

I would much rather pay a fee and attend a live half-day seminar offered by the NY or NJ chapter of NATP, or John Sheeley’s organization, than waste my time with the free NYS offering.

After finishing the CPE, I attempted to pay my annual $100 extortion fee.  I tried multiple times over the past week without luck.  Each time I was told “Our records indicate that you have not completed your mandatory tax preparer education requirements”, despite the fact that I had in hand printed certificates for, and email confirmations that I had completed, each of the 4 required classes.  As of this writing I have still not been able to give NY my $100.  I will call the number provided on Monday morning (the day this post first appears).  What a total pain in the arse!

As I wind down my practice toward retirement (after completing 50 tax filing seasons), I truly look forward to the point where I prepare less than 10 NYS income tax returns (I currently do at least 20), so I do not have to deal with this nonsense every year – neither the CPE time-waste nor the $100 fee.

FYI – I add a special line item charge on the invoice sent to each client for whom I prepare a NY state income tax return for $5.00, which I identify as “NYS Tax Preparer Extortion Fee Surcharge”.

So, do any of you have any comments on the NYS registration process and its CPE and fee requirements?

UPDATE 11/29/2017:

I found out why NYS would not accept my $100 extortion fee payment.  They were apparently correct when they told me in an error message “Our records indicate that you have not completed your mandatory tax preparer education requirements”. 

The state lied – the CPE requirement is NOT 4 CPE hours (4 50-minute hours of 200 minutes). I had to take 230 minutes.  It appears that one must take 1 class each from 2 separate optional groupings.  So, I chose a class titled “Tax Computation Credits and Other Taxes” advertised as 30 minutes. 

I now have a printed “Certificate of Completion” for “successful completion of 2018 Registration Education Requirements”!

I will wait for my completion of the final class to be processed and try to give the state my extortion money later today.  Hopefully they will finally take it and this nonsense will be over for another year.

TAFN

I have been preparing 1040s since 1972. Over the years I have developed a collection of forms, schedules and worksheets that have proven very helpful in my practice. 

Some of my forms are given to clients to help them provide me with the information I need to properly prepare their returns. Some are used as “memos” to the client’s copy and my office file copy to back-up items reported on the returns. Others are used as attachments to the returns.

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THE NEW JERSEY ELECTRONIC FILING MANDATE

This post is for NJ tax pros.  I will outline my NJ-1040 submission practice – and ask that you let me know if you think I am following the law.

Under the NJ “Electronic Filing Mandate” preparers that reasonably expect to prepare 11 or more individual gross income tax resident returns (including those filed for trusts and estates) during the tax year must use electronic methods to file those returns for which an electronic filing option is available.

I do not use flawed and expensive tax preparation software to prepare my federal and state 1040s – and at this point in my career I never will.  Therefore the only electronic filing option available to me for NJ returns is NJWebFile.

Because of the many, in my opinion unnecessary, restrictions and limitations to the NJWebFile system I cannot submit all of my NJ-1040s using this method – even if I wanted to.  For these returns, and in my case, there is no electronic filing option available.  I do not, in my opinion, need a client-signed OPT-OUT form for those returns I cannot submit electronically because NJWebFile will not allow me to do so.

Whenever possible I submit my NJ-1040s “electronically” via NJWebFile, unless the client specifically “opts out” of electronic filing.  In such a case I get a signed OPT-OUT form from the client.

It is beneficial for a client whose NJ-1040 requests a refund to submit their return via NJWebFile because doing this allows their refund to be directly deposited to their bank account.  Despite the fact that direct deposit would save the state money, NJ does not allow direct deposit for refunds requested on returns that are not, or cannot be, submitted electronically.

So what do you think?

FYI, New York State specifically exempts me from the NY electronic filing mandate because I do not use flawed and expensive tax preparation software.  They still, however, extort $100 from me each year for the “privilege” of preparing a little over 20 NY state income tax returns.

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   

CONGRESS GETS INTO THE ACT

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

I COULDN’T LEAVE WITHOUT POSTING THIS

I know I said I was “gone” for the tax season, but it is still slow, and I felt this recent development needed commenting in light of my editorial “It’s Time for Independent Certification for Tax Preparers” (like many of the items I write for portals, the title is written by the editor – my original title was “Do we really need to license or regulate tax return preparers”) at ACCOUNTING TODAY.

The National Association of Tax Professionals (NATP) and other tax-related membership organizations (NSA and NAEA) have been good at providing members with updates and information on the continuing Loving vs IRS “story”.  Here is what the NATP sent members via email on Saturday (highlight is mine) -

“On February 1, 2013, United States District Court Judge Boasberg issued a Memorandum and Opinion Order. In this order he clarified two points:

1.    Defendants’ {IRS – rdf} Motion to Suspend Injunction Pending Appeal is DENIED; and

2.    The Injunction is MODIFIED to make clear that the IRS is not required to suspend its PTIN program, nor is it required to shut down all of its testing and continuing-education centers; instead, they may remain, but no tax-return preparer may be required to pay testing or continuing-education fees or to complete any testing or continuing education unless and until this injunction is stayed or vacated by the Court of Appeals.”

The court did not stay the injunction.  The mandatory RTRP program is dead.

The PTIN requirement, which is really all the IRS needed in the first place, is intact.  All individuals who want to prepare federal tax returns for compensation must register with the IRS and be issued a PTIN.  But “non-exempt” (what I call “previously unenrolled”) preparers are not required to take a competency test to receive the designation of RTRP and maintain required annual CPE in order to renew their PTIN.

The court suggested that the IRS can continue its RTRP designation program, with required testing and CPE, on a voluntary basis, similar to its Enrolled Agent (EA) program.  PTIN-holders may choose to receive the certification/designation of Registered Tax Return Preparer by meeting the requirements, just as they have been able to choose to be certified/designated as an Enrolled Agent.  This way the money spent by the IRS in developing the program would not be lost, and those who have already received the RTRP designation will not have wasted their time and money.

An IRS-maintained RTRP voluntary certification program would negate, and make academic, the need for the National Institute of Certified Tax Return Preparers that I proposed in my editorial.  While I still contend the best source of administration of such a voluntary certification program would be an independent industry-based organization, I could live with the IRS running the program – as long as it was voluntary.

Three things:

First -

The original need for a $64.50 initial and $63.00 subsequent annual PTIN registration fee was to fund the annual renewal process that would include verification of required CPE and maintaining a system to independently track CPE.  Since PTIN-holders no longer need to maintain CPE as a requirement for renewal there is no longer a need for such a fee.  The Service could charge a more nominal fee, no more than $25.00, to cover the basic costs of maintaining the PTIN registry.  Prior to the initiation of the regulation regime, when PTINs were voluntary as an alternative to having to use one’s Social Security number, there was no charge for applying for a PTIN, and there was no need for annual renewal.  With the RTRP requirement gone, the PTIN would not need to be renewed annually – perhaps renewal could be every three years so the registry would remain relatively current.

The $64.25 initial and $63.00 annual fee would apply to only those who apply for the voluntary RTRP status.  The IRS, while continuing the annual 15 hour CPE requirement, could also maintain a 3-year renewal period similar to that currently in affect for EAs, so the $63.00 renewal fee would not be annual.

Technically, PTIN-holders who did not go on to earn the RTRP designation should be entitled to a refund of the difference between the new nominal registration fee and the amounts they had paid.  

Second -

We still have the problem of naming the voluntary certification designation.  The term “Registered” Tax Return Preparer is really no longer appropriate.  Since all paid tax preparers are still required to “register” with the IRS, all PTIN-holders are, in effect, “registered” tax return preparers.

Ideally the IRS could make the designations of “?TRP” and “EA” similar to identify that they are different levels of the same program.  Originally I had suggested ETRP (Enrolled Tax Return Preparer) as the new designation for current Enrolled Agents.  This designation keeps the historical “Enrolled” component, but properly identifies the holder as a Tax Return Preparer and not an “Agent” of the IRS.  This is still a valid option.

The term “certified” will always cause problems, and would appear to be a step higher than “enrolled” when it is actually just the opposite (ETRP is a step higher than RTRP).  And “licensed” does not apply because a license is not required to prepare tax returns, and this would appear that those preparers who choose not to apply for the new voluntary designation are not really “kosher”.  Perhaps “Regulated Tax Return Preparer”, though I do not really like the sound of that.  Or maybe “Accredited Tax Return Preparer”.

I expect that if the IRS does indeed decide to keep its RTRP program as a voluntary certification it will keep the term “Registered Tax Return Preparer”, however inaccurate, only because keeping it in place would be cheaper than having to rewrite its programs for a new name.  Whatever it does I would still recommend that the EA designation be changed to ETRP.

The IRS could combine the new voluntary RTRP (or whatever) program and the existing EA program 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.  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.   

And third –

When the RTRP designation was mandatory the IRS exempted CPAs and attorneys from the requirement.  This is because, as David Williams originally explained to me, the Service felt it was “statutorily prohibited” from regulating CPAs and attorneys ability to “practice” before the IRS (this was when the Service confused preparation with practice).

Just as with my proposal for a NICTRP, under the new voluntary RTRP (or whatever) program CPAs and attorneys who prepare tax returns could elect to apply for this new designation to properly identify their competence and currency in 1040 preparation.  A person could be both a CPA and an RTRP (or whatever).  Currently there are CPAs who are also EAs.  And, as with CPAs who choose to become EAs, CPAs and attorneys who apply for this designation would be required to take the competency test and maintain CPE in federal taxation.

OK, now back to my 1040s.  But before I go – what do you think about my three points?

RDF

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?

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