LET THE DEBATE BEGIN

Enrolled Agent, and fellow tax blogger, Jason Dinesen of Iowa has responded to the recommendations I offered in “My Letter to Carol Campbell” in a post titled “RTRPs, CPAs, Attorneys and Grandfathering” at his excellent blog DINESEN TAX, INC, formerly known as DINESEN TAX TIMES.

He takes on two of my recommendations -

“Many, if not most, RTRPs and enrolled agents seem to believe that CPAs and attorneys should be required to take the RTRP exam in order to prepare tax returns.

Not me.

I am open to Robert Flach’s idea of grandfathering unlicensed tax preparers such as himself, who can demonstrate a certain amount of experience and a certain amount of continuing education.

I am not open to the idea of requiring a CPA or an attorney to take the RTRP exam.”

Why?

“I agree completely that it’s wrong for the public to automatically assume that CPA equals ‘tax expert’. As an enrolled agent, I am as annoyed as anyone over that misconception.

But forcing a CPA or an attorney to take an open-book exam over basic tax law would be insulting to CPAs and attorneys.”  

CPAs have been insulting EAs and competent previously unenrolled preparers for years by perpetuating the “urban tax myth” that CPAs are the only tax experts and that CPAs “own” the area of taxation. 

Fellow blogger Marilyn Lawver, who just happens to be a CPA, wrote the following in a blog post a few years back (the highlight is mine) –

“Robert is correct that a CPA is not specifically licensed for tax preparation, rather ‘a CPA is a licensed accountant, authorized to certify audits of financial statements’. Just a couple of months ago, I was pondering this exact issue. I was thinking about all the fancy credentials the AICPA offers for CPAs in other specialties - financial planning, fraud examination, business valuation - and wondering how to become a certified tax expert.

So I emailed the AICPA asking about it. Here's the exact wording of the response I received:

’We do not offer a credential in taxation. In general, our approach has been not to develop credential programs around areas for which the public already believes CPAs to 'own'. In addition, we do not endorse a particular tax credential.’”

Exempting CPAs from proving competence or remaining current (they are also exempt from required CPE in federal taxation) in 1040 preparation continues to perpetuate this “urban tax myth”.

I do agree with Jason that CPAs and attorneys “have already passed much, much more rigorous tests”.  There is no doubt that the CPA and bar exams are much more extensive and difficult than the RTRP competency exam (as is the Special Enrollment Exam for EAs).  But the CPA and bar exams have nothing to do (or at most only minimal to do) with 1040 preparation.  I expect that an engineer or architect must also take a rigorous test to be licensed, but would you want an engineer or architect preparing your tax return?

Jason goes on to say – “And anyway, what would it prove? The RTRP exam is an open-book test over basic tax law.”  And he explains that the RTRP test is “a test over basic tax law – it’s not designed to be a ‘tax expert’ test”.

That is not the issue.  Regardless of whether there is any real value to requiring the test of anyone, the issue is that the Internal Revenue Service wants anyone who intends to prepare more than a minimal number of tax returns for compensation to demonstrate some degree of competence in federal 1040 tax law.  By exempting CPAs and attorneys from this test the Service is saying that the CPA and bar exams are tests of competence in 1040 preparation – which is just not true.

It is true, as Jason points out, that CPAs and attorneys are “held to ethical standards by their state boards, and I believe one of those standards is to not practice in an area in which they don’t have knowledge.”  But professional ethical standards did not prevent Enron or other CPA or attorney created tax fraud.  And the ethical standards of doctors and other professionals do not prevent malpractice.

Does Jason also believe that CPAs and attorneys should be exempt from required CPE in taxation because they are already required to maintain CPE (although none of the required CPE has to be in taxation) to maintain their current designation?

Talking about “insulting” CPAs and attorneys – I believe it is an insult to someone like me, who has been preparing 1040s without incident for 40 years and who has maintained an average of 20+ hours per year in CPE in federal taxation for at least the past 25 years, to be forced to take a test to prove that I know what I have been doing all these years.

Jason promises “more to come in future blog posts”.  I look forward to his future posts on the subject, and to a continued debate on this subject.

The floor is open for discussion.

RDF

MY LETTER TO CAROL CAMPBELL

Below is the text of a letter I have mailed to Carol Campbell, David Williams’ replacement as Director of the IRS Return Preparer Office -

Dear Ms Campbell:

Congratulations on your recent appointment as the new Director of the IRS Return Preparer Office.

I have been preparing 1040s for individuals in all walks of life without incident since February of 1972.  FYI - during my 40+ years in “the business” I have never used flawed and expensive tax preparation software to prepare an individual income tax return.  Each year I prepare about 400 sets of income tax returns manually. 

I am the author of the popular tax “weblogs” THE WANDERING TAX PRO (http://wanderingtaxpro.blogspot.com), around since the summer of 2001, THE TAX PROFESSIONAL (http://thetaxprofessional.blogspot.com), and the NEW JERSEY TAX PRACTICE BLOG (http://njtaxpractice.blogspot.com), and also write on tax planning and preparation topics for TheStreet.com and its sister site MainStreet.com, and the publications of the National Association of Tax Professionals, of which I have been a member for 25 years, and its New Jersey chapter.

I have been a vocal supporter of the concept of registering and regulating tax return preparers, and of the Registered Tax Return Preparer designation, since it was first introduced by Commissioner Shulman, although I do take serious exception to some of the requirements of the current regulation regime.

I very strongly believe that long-time experienced tax professionals who remain current in tax law, like myself, should be exempt from the initial competency examination as a requirement for receiving the RTRP designation under some kind of “grandfathering”.

I am not saying that years in the business automatically equals competency.  There are preparers who have been around for 3 or 4 decades who are not sufficiently competent and current in today’s tax law.  My formula for “grandfathering” is years of experience + proof of extensive ongoing professional education.   

I would exempt from the initial competency test all paid tax return preparers who have consistently been preparing 1040s full time (I mean during the tax season – not 40 hours a week all year round) for at least 5 full years (60 months) prior to registering for a PTIN, and who have earned a minimum of 50 hours of CPE in federal income taxation topics during the previous 3-year (36 months) period. 

To be perfectly honest - after preparing tax returns competently, professionally, and ethically for over 40 years I find it somewhat demeaning to be forced to take a test to prove that I know what I have been doing all this time.

The fact that 300,000+ potential RTRPs have not yet taken the initial competency exam with less than 16 months left before the clock runs out almost demands some kind of grandfathering.  It does no good for the IRS, or the taxpayer public, to force tens of thousands of competent and experienced tax professionals out of business, or cause them to go “underground” and become “phantom” preparers.

I also strongly believe that CPAs and attorneys who want to prepare federal income tax returns for compensation, and who would not be exempt under the previously discussed grandfathering, should be required to take the initial competency examination and maintain the required annual 16 hours of continuing professional education in federal taxation topics in order to do so – just like the rest of us.  Only Enrolled Agents should be exempt from the RTRP requirements.

For years Certified Public Accountants have unduly benefited from an erroneous “urban tax myth” that a CPA is automatically a tax expert by merely possessing the initials.  The current exemption of CPAs from demonstrating competence and currency in federal individual income tax only adds to this myth.

Your predecessor, David Williams, and other high-level IRS officials have acknowledged that the CPA exam and the bar exam are not tests of 1040 tax knowledge, and “blame” the exemption from testing and CPE requirements on a federal statute and an erroneous  confusion of “preparing tax returns” with “practicing before the IRS”.

I am aware that there are many competent tax experts currently in practice who are CPAs.  However this is because of the specific training, experience, and continuing education of the individual, and has absolutely nothing to do with having once passed the CPA exam.

I have absolutely no problem with the 16 hour annual CPE requirement for maintaining one’s PTIN and RTRP status.  I have taken, on average, much more than 16 hours of CPE in federal and state taxation per year for at least the past 25 years.  My only concern is requiring preparers to waste time and money on 2 hours of “ethics” each and every year.  2 hours of ethics in the first year of registration and 1 hour of ethics updates every two or three years thereafter would be sufficient.

While I feel that regulation of professional tax preparers would be better handled by an independent industry-based organization, such as an “American Institute of Registered Tax Return Preparers”, I certainly prefer having the Internal Revenue Service regulate preparers as it now does to having Congress legislate regulation.

I would like to see the IRS create a “civilian advisory committee” to its Return Preparer Office, similar to the “civilian advisory committees” already in existence for other IRS functions, and would gladly volunteer to serve on such an entity.

Thank you for allowing me to give you my thoughts on the IRS tax return preparer regulation regime.  If I can be of any help to you or your office in the future please do not hesitate to contact me.

Sincerely yours,

Robert D Flach

Any comments?

RDF

ANOTHER ENDING OF ANOTHER CONFERENCE

The NATP National Conference in Baltimore has come to an end.  In my 25-years as an NATP member (and 41 seasons as a paid preparer) I have attended probably 20 of these conferences.  At this point I find that I really do not learn anything new of consequence at Conference - but I do pick up, or am reminded of, an occasional deduction, credit, loophole, technique, or strategy that would apply to a client.  

However, despite my personal reaction, I do say to tax pros - like Iowa, “You Ought to Give the NATP National Conference a Try”!

And many did this year.  I heard that this was the highest attendance in Conference history, with over 1300 attendees.

First and foremost - attending the annual NATP National Conference is an excellent way of taking a tax-deductible vacation (see my recent TWTP post).  Over the years I have visited Anaheim, Atlanta, Arlington, Alexandria, Austin, Boston, Corpus Christi, Minneapolis, Orlando, Sans Antonio, Diego and Francisco, Washington DC, and other locations as a registrant at the NATP and other membership organization tax conferences.

You can arrange your schedule so as to have a full or half-day off for sightseeing.  Here in Baltimore the conference was Monday through Thursday.  I worked it so that I did not have any educational sessions on Tuesday.  While I choose to “sleep in” and start my classes at 10AM and end after 4PM, I could have begun at 8AM and finished by 3PM.  You also have the day before and the day after for local activities.  And of course there is always the evening for dining, theatre, concerts, and the local nightlife.  

The cost of a room is the same whether there is one person in the room or two – so you can bring your spouse and still deduct the full cost of the room.  And, while on a vacation, your primary purpose for being where you are is attending the tax conference, so all of your travel is deductible.

If staying an overnight on a Saturday results in a reduced airfare an IRS ruling allows you to deduct all of your out-of-pocket costs of staying the extra day, even though there are no business activities on this additional day.

The tax savings from the deduction will usually cover at least the cost of the Conference fee, and often ends up providing “reimbursement” for some of the actual travel costs.

While Conference offers the opportunity to stay at a luxury hotel, often excellently located in downtown or waterfront areas, at a discount, sometimes a deep one, you do not have to stay at the host hotel.  Here in Baltimore (on the waterfront) the Marriott room rate was $149 for conference attendees (actually over $170 per night after taxes and other charges).  I stayed in the Mount Vernon Cultural District at a mid-level chain for just under $70 per night (total cost) and about $20 per day in taxis to and from Conference. 

If I were in better shape/condition I could have taken a free bus from my hotel to the waterfront area and walked to the host hotel.

Now that the IRS requires RTRPs to maintain at least 15 hours of annual CPE in federal taxation, the Conference allows you to fill some, or all, of these credit hours.  You can easily earn more than 15 hours of CPE at Conference.  And the offerings include the required 3 hours of “updates” (I.e. Current Developments for both individual and business tax issues) and several hours of ethics preaching.

I am unique.

·      I do not accept any new 1040 clients, and I do not do any partnership, sub-S corporation, or estate tax returns.  

·      I have no desire to represent taxpayers in dealings with the IRS (other than to attend the audit of a return I have prepared). 

·      While I do believe that you can teach an old dog new tricks, this old dog does not necessarily want to learn new tricks, especially when it may apply to only one or two, or none, of my current clients once or twice. 

·      Because I write extensively during the year on tax topics I must keep abreast of “current developments” as they happen via independent reading and research.  And I always attend the NATP’s year-end “Famous 1040 Seminar” (or as it is now called “The Essential 1040”), which covers current developments through November.

So there are only so many sessions offered at Conference of interest, or actual value, to me. 

However, for a younger preparer, or one wishing to develop or expand his/her practice, there is a multitude of sessions on a wide variety of tax preparation and planning and practice management topics taught by, in most cases, excellent speakers who are experts in their particular topic.

FYI – the 2013 conference is July 8 – 11 at the JW Marriott Desert Ridge Resort & Spa in Phoenix, Arizona, and the 2014 conference is August 11 - 14 at the Marriott World Center in Orlando, Florida (again, extremely hot locations, weather-wise, at the hottest times of the year – my main complaint with NATP about the conferences).

RDF

GREETINGS FROM BALTIMORE!

I am in Baltimore attending the National Conference of the National Association of Tax Professionals, held this year at the Baltimore Marriott Waterfront.  See my post on the conference at THE WANDERING TAX PRO (and my afterthought).

The Keynote Speaker at the opening ceremonies was David R Williams, Director of the IRS Tax Preparer Office, who is in charge of the IRS new regulation regime.

David began by telling us that the impetus behind the regulation of tax return preparers is the fact that the Tax Gap has grown to $450 Billion.  It is the hope of the IRS that improving the quality of tax return preparers will result in more correct tax returns being filed, and ultimately help to make a dent in this Tax Gap.

When the regulation regime officially kicked off last year there were almost 848,000 PTINs issued by the IRS.  Only 715,000 renewed for calendar year 2012 – a loss of 133,000.

There are currently 3,269 previously unenrolled tax professionals who have taken and passed the initial competency test to receive the new RTRP (Registered Tax Return Preparer) designation.  This leaves almost 339,000 RTRP “candidates” – previously unenrolled preparers who need to take and pass the test by December 31, 2013 (I am in this number).  That is a lot of tax preparers.

David says that the IRS wants potential preparers to “demonstrate basic competency”, by passing a test and maintaining minimal annual CPE in taxation, before being allowed to prepare 1040s for compensation.  This is a bold-faced lie! 

The IRS has no interest in being sure that all preparers “demonstrate basic competency” - because about 300,000 of the 715,000 current PTIN holders do not have to demonstrate any competency and do not have to remain current by taking annual CPE in taxation.  I am, of course, talking about the CPAs, attorneys, and “supervised employees” who are exempt from the test and CPE requirements.

David does not address this serious issue – quickly glossing over it by implying that CPAs and attorneys demonstrate competency by virtue of having taken the CPA and bar exams – another bold faced lie.

David stated in his presentation that the IRS does not plan to extend the 12/31/13 deadline for passing the RTRP test.  He also says it is not the intention of the IRS to take away the ability to make a living from previously unenrolled preparers – but will the IRS do this when the deadline passes and 100,000 or so RTRP “candidates” have still not taken and passed the test?

I wonder if the 339,000 “candidates” have not taken the test yet because they want to make sure the IRS gets all the “bugs” out before doing so, or if they are waiting in hopes that the IRS will eventually embrace common sense and provide some kind of “grandfathering” – both good reasons for procrastination in this matter, and both reasons why I have not yet sat for the test.

David told us that CPE requirements will be enforced for RTRPs, and RTRP candidates, for calendar year 2012.  The IRS has arranged for authorized CPE providers to provide information, based on PTINS, directly to the IRS – so at renewal time required CPE can be automatically verified.  There will, no doubt, be some glitches (i.e. CPE taken in December may not be uploaded in time) and tax professionals will be able to “attest” to their 2012 CPE, without immediate IRS verification, when renewing their PTIN for 2013.

He also put our minds at ease by affirming that fingerprinting of PTIN holders has been put on indefinite hold while the IRS investigates alternate methods of conducting “background checks”.

And he announced that the IRS hopes to have a public online database of RTRPs available after the 2013 tax filing season (when 2012 returns are prepared).

To be honest - as I pointed out to an NATP staffer at the NJ-NATP luncheon on Monday afternoon – with all its flaws I would rather have the IRS regulate tax preparers as it currently does than have the idiots in Congress legislate regulation.  As you know full well, the idiots in Congress could “f**k up a High Mass”.  And David Williams is an excellent choice for Director of this process.  He is intelligent and sincere.  We certainly could have done much, much worse.

However the current regulation regime has serious problems with its refusal to grandfather and its exemption of CPAs, attorneys, and “supervised employees” from testing and CPE.  We must continue to publicize and criticize these gross inequities in the system.

RDF

AN RTRP RESPONDS

Atlanta-based RTRP David Kempe responded to my last two posts on the RTRP competency test requirement.  See the comments section of these posts (click here and here)

Thank you, David, for taking the time to comment on my RTRP exam posts and for sharing your “story” – which is indeed similar in ways to mine.

I am pleased that you have verified that I should have no problem passing the test – as I expect, despite my sincere hopes, I will have to eventually sit for it.

Let me in turn respond to David’s comments -

·   I am at the end of my career.  I hope to be able to last 9 more tax seasons so I can say I have done it for 50 years.  It appears that you are barely in the middle of your career.  If I had 25 more years in the business ahead of me I would very seriously consider using flawed and expensive tax preparation software.

·   I do not have to submit the 1040s I prepare electronically because I do not “file” the returns under the IRS definition.  All my clients sign a statement that says –

“My tax return preparer Robert  Flach has informed me that he may be required to electronically file my 20-- federal individual income tax return if he files it with the IRS on my behalf.

I do not want to file my return electronically and choose to file my return on paper forms.  My preparer will not file my return with the IRS.  I will file my paper return with the IRS myself.

I was not influenced by Robert D Flach to sign this statement.”

·   I believe that the registration of previously unenrolled preparers and the issuance of a RTRP designation - NOT the initial competency test – is long overdue.

·   I certainly agree that many of our competitors are little more than data entry workers – especially those who work for the overpriced fast-food commercial preparation chains.

·   Exempting all CPAs and attorneys from having to take the test smacks of much more dangerous favoritism then grandfathering long-time preparers who have proven they have remained current via extensive annual CPE.

·   I do agree that required annual CPE is a small price to pay for “less gross incompetence in the tax field and a better, more knowledgeable field of tax professionals” – but will never change my mind about the test.

Thanks again David!

RDF

MORE ON THE COMPETENCY EXAM

TAXPRO TODAY took a look at the RTRP initial competency exam that I do not want to be forced to take in “Takers of the RTRP Exam Discuss Their Experience”.

The article pointed up another reason why I do not want to take it -

Part of the test anxiety may stem from regulations at test centers. "When you go into the testing office, you're nervous. They check everything in your pockets”, said Ramon. "They don't want you to carry even a handkerchief in there," added Weinberg. Tests are given in cubicles, with regimented start and countdown times. Weinberg recalled thinking, "'What happens if this computer just slows down?' There were also more questions than I expected on IRS procedures."

Another indignity – being treated like a schoolchild.  I had heard a few stories of the ridiculous procedures for taking the test at a CPE class last year.

I am not worried about the actual test itself.  It is not a question of worrying that I will not pass.  The article explains –

Those who've already taken the 120-question test generally agree that it can be passed with proper study by those with solid tax-prep experience.

The article also indicated that I should do better on the test than most preparers (highlight is mine) –

. . . an Enrolled Agent of 19 year's tax-prep experience wrote, "The more you relied on tax software in the past for preparing returns, the harder this exam will be to pass”.

The EA went on to say -

“Don't let the open-book thing fool you. Many preparers that have taken the test tell me that you don't have time to look these answers up," this reader added, citing test questions on moving expenses, income and assets, IRAs, "a lot of things that are not being addressed regularly."

I am interested In hearing from readers who have sat for the test, as well as from those who agree there should be grandfathering.

RDF

SPECIAL SUMMER SAVINGS FOR TAX PROS

To celebrate the beginning of summer I want to make a very special offer to tax professionals.

As you probably know, 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 “homemade” 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.

I generally offer this compilation for $6.00.  As a special summer offer you can have this forms package for only $3.00 if your order is postmarked by July 31, 2012!

The package will be sent as a “word document” email attachment, so you may edit and revise them as you see fit to personalize them to your firm, customize them be more relevant to your particular practice or clients or specific professions, or update them for annual COLAs or tax law changes.

Here is a listing of what is included in the package.

SCHEDULE A –

1. Supplement to Schedule A

2. Medical Expense Worksheet

3. Medical Expenses – Out of Pocket Anaylsis

4. Charitable Contribution Listing – for non-cash contributions

5. Charitable Contribution Record – for cash contributions (2 pages)

6. Charitable Mileage Record

7. Contribution Worksheet

8. Employee Business Expenses – generic format, can be customized 

9. Employee Business Expenses – Police Officer – example of customized

10. Conventions, Conference and Education

11. Miscellaneous Expenses #1

12. Miscellaneous Expenses #2

13. Summary of Casino Gambling Activity Log

SCHEDULE C – (some of these forms can also be used for employee expenses)

1. Allocation of Expenses

2. Automobile Expense Worksheet

3. Auto Mileage Log

4. Business Expenses of a Freelance Writer

5. Business Travel Record

6. Computer Use Log

7. Election to Deduct Organization Expenses 

8. Employee Expense Report

9. Employee Time Card

10. Home Office Deduction Worksheet

11. Cell Phone Log - in “landscape” format - sent separately.

SCHEDULE D – 1. Cost Basis Worksheet

SCHEDULE E –

1. Owner-Occupied Multi-Unit Rental Property Expense 

2. Statement of Rental Income and 

3. Statement of Rental Income and Expenses – Vacation Property

4. Multi Family Building

GENERAL –

1. Alternative Minimum Tax Worksheet

2. Does Not Have To File

3. Statement of Dividend Income

4. Statement of Pension Income – in “landscape” format- sent separately

Please be aware that these forms, schedules, and worksheets are copyrighted material, and are for your internal use only – and cannot be “shared” with other tax pros or firms.

Send your check or money order, payable to TAXPRO SERVICES CORPORATION, for $3.00 and your email address to –

TAXPRO FORMS

TAXPRO SERVICES CORPORATION

PMB 304

72 VAN REIPEN AVENUE

JERSEY CITY NJ 07306-2806

Hey, for $3.00 you can’t go wrong!

TTFN