TAX PROS SPEAK OUT ON VOLUNTARY CERTIFICATION

Here are the reactions from fellow tax pros and tax bloggers and interested parties on my idea for a National Institute of Registered Tax Return Preparers, from “tweets” and blog posts:

CPA Joe Kristan started the ball rolling, and proved that brevity is the soul of wit, with his “tweet” –

“Constructive.”

He did go on to say in his Tuesday “Tax Roundup” at the ROTH AND COMPANY TAX UPDATE BLOG –

“Robert D. Flach proposes a voluntary Registered Tax Return Preparer designation.    I have no problem with a voluntary branding, and if Robert and other unenrolled preparers can make a brand of it, more power to them.   I don’t see it happening, though, as it would do nothing for the big franchise preparation companies, who already have their own brands.”

Dan Alban of the Institute for Justice, the attorney who won the recent court case against the IRS, supported the idea in two “tweets”–

“Great plan! Best of both worlds: certification for preparers/consumers who value it and lets people choose. 

An excellent constructive proposal from tax veteran @rdftaxpro - voluntary certification offers best of both worlds.”    

A tweet from Kim Kislak –

“Good Idea, since there is no way to stop ghost preparers. If the ruling sticks with the IRS, they will need to implement something.”

 Enrolled Agent Jason Dinesen “tweeted” –

“I agree with the premise, but there needs to be clear distinction about practice rights of the licensed vs. the unlicensed.”

Jason also posted his “Further Thoughts on Preparer Regulation” at his blog DINESEN TAX TIMES, which included the following comment on the NIRTRP idea -

“Robert Flach (aka The Wandering Tax Pro) responded to the ruling by proposing the creation of an independent organization called the ‘National Institute of RTRPs’ that would issue and oversee the RTRP license.

Robert’s idea has a lot of merit. An independent overseer of the RTRP designation would be more likely to be successful than the IRS’s lame attempt. And certainly there needs to be some way to hold the unlicensed accountable, especially in regards to continuing education.”

On the other hand, this "tweet" from CPA Peter J Reilly of FORBES.COM -

“I doubt it would be worth the effort to get it going and establish the brand.”

And Russ Fox EA put in his more than 2 cents worth on the issue with “Alphabet Soup” at TAXABLE TALK -

“While Robert Flach argues that RTRPs should be resurrected as a voluntary designation, I doubt that will happen (and I don’t see a benefit from it).”

Kelly Phillips Erb, a tax attorney, referenced my post in her interview with Dan Alban at FORBES.COM “Attorney Who Bested IRS In Tax Preparer Regulation Case Speaks Out”.  She promised to read my post after hers was published, saying “I haven’t read the piece yet because I didn’t want it to influence my post”.  I had heard no more from Kelly prior to scheduling the publication of this post.  I will let you know what she has to say in a future post.  

Trish McIntire posted “Voluntary Licensing?” at OUR TAXING TIMES in direct response to my call for comments –

“As for the voluntary licensing, which one? It would be nice to think that one of the existing tax preparer organizations will create a definitive program but I can see testing and certification programs popping up all over the place. That could be the downfall of a voluntary program; too many options and criteria. Each program would have its own designation and qualifications. Tax preparers could chose the program they like the best (easiest test, least continuing education, lowest cost). Taxpayers would be confused trying to keep the designations separate.

If I was creating the program, I would have a mandatory test and annual continuing education of at least 15 hours for anyone preparing over 10-15 returns a year. I wouldn’t have grandfathering (sorry Robert) because I’ve seen too many “experienced” preparers make mistakes. If you’re going to have a standard, everyone should have to meet the same standard no matter how long they’ve been in business or how many returns they do a year. Keep it simple.”

First I do not want to call my voluntary RTRP program “licensing”.  The term license implies government involvement and a legal requirement or distinction.  I prefer to refer to it as a “certification program”.

Trish has described the problem of voluntary designations like Certified or Chartered Tax Preparer in the past – each organization offering its own option.  As I explained in my post, the National Institute of RTRPs would only succeed if it were the only voluntary option, and its governing board included all existing tax preparer organizations and, perhaps, a representative of the IRS.

I would, however, insist on “grandfathering” (which would include those who had already passed the IRS RTRP test and been issued the designation, which I failed to mention in my initial post).  And I would recognize those who have already passed a competency test either via an education program or state licensure.  My program would also welcome CPAs and attorneys to have the opportunity to “enroll” and thereby identify their 1040 preparation ability.  It would, obviously, be totally unnecessary for EAs.

Just as a matter of logistics, it would be unwieldy and expensive to have to test a potential 400,000 individuals in a short period of time (as the IRS has discovered).

 

Thanks to all my fellow tax pros and tax bloggers for sharing their thoughts and insights on the issue.  Further comments are welcome! 

Let me end by saying this.  The last thing I want is the idiots in Congress legislating tax preparer regulation.  They have FU-ed enough things – let’s hope they keep their hands off this issue.

RDF

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

AND THE BEAT GOES ON . . .

As expected, even though it is a Saturday the tax blogosphere was a-BUZZ with the word that the court has closed down the IRS tax preparer regulation regime.

Joe Kristan is as expected, a pig in reality tv over the court decision.

“I am glad that the IRS lost in court.  I have hoped the regulations would be overturned, and I thought they should be illegal, but I am not a master of the law covering IRS regulatory problems.  Regardless of whether they are legal, I have always thought the regulations unwise.”

Russ Fox reports the death of regulation (for now) and suggests the unthinkable – that the idiots in Congress might legislate regulation -

“While the IRS is certain to appeal, it appears that the RTRP program is dead (at least for now). It will likely take an act of Congress to expand the IRS’s regulatory power to unenrolled preparers. And that’s not likely to happen in the current Congress.”

There was also a lively discussion on various aspects of the regulation regime on Twitter.

“Of course it’s necessary {CPE for tax pros – rdf}!  This stuff changes every year! If you don’t stay educated don’t call yourself a tax pro. Tax specific CPE should be required from attorneys & CPAs as well. A JD does not endow you with perpetual tax knowledge.” - Mariette Knoblauch, CPA

“CPE requirements are a Must! Sadly, there so called tax pros who don't even have basic fundamental knowledge of tax prep.

The exam is useless. I would much prefer an independent Org to administer required CPE's for unlicensed preparers.” - Alex P. Louis, EA

“There's another option - voluntary certification (rather than regulation) by either the IRS or an independent group.” - Dan Alban

“And no monopoly to one for-profit company. Resent being forced to give $ to Prometric.” – Mariette Knoblauch, CPA.

A follow-up “tweet” from Dan led me to a September 2012 quote from Chuck McCabe, chief executive of Richmond, Va.-based Peoples Income Tax and The Income Tax School -

“The new requirements will cause an exodus of tax preparers, who will stop practicing rather than take the test and complete annual education”

How many times must I say that CPE is not an excessive or prohibitive requirement – it is a basic and very necessary cost of doing business, regardless of whether or not it is required! 

NATP offers two days, 16 hours, of CPE, which includes the 3 hours of updates and 2 hours of ethics, at many locations throughout the US (so there is no need to incur costs for travel or lodging) in November-January.  The cost of the 2 days for 2012 was $349.  I expect other providers offer less expensive alternatives.  So if that is $3.50 per return if spread over 100, $1.75 if spread over 200, or a little over $1.00 for 300 clients.     

I cannot see anyone who is making a good living as a tax preparer leaving the business because of a $64.00 annual fee and a one-time test. 

The problem of forcing preparers out of business comes from the IRS insisting on not postponing the deadline for testing with over 300,000 PTIN-holders who have to sit for it, or its insistence on not allowing grandfathering.  While I do not want to waste time and money on the test if I do not have to, I will take it if the alternative is giving up my business. 

Dan also “tweeted” –

“It is expensive. Taking CPE classes is not the only way to stay up-to-date on IRS regs. Many people learn better from reading.”

This is true – self-study.  But there are options available to receive credit for self-study.

Trish McIntire joined me in shooting down the argument that the cost of regulation would in itself force serious preparers out of business in her post “Licensing Pity Party” (highlights are mine) -

“This lawsuit involved three tax preparers who claimed in part that the costs of the new tax preparer regulations will force them to stop preparing returns. Bovine excrement! The preparer costs are a onetime testing fee of $116, an annual PTIN registration of $64.25 and the costs of 15 hours of continuing education. How much does the CPE requirement cost? That depends on the courses used. In 2012, I paid $428.50 for 32 hours of course work. That averages to $13.39 an hour. I could have spent less. I’ve seen free CPE and companies that offer packages under $10 an hour. I’ve also spent more for special courses I wanted to take. But working from an average of $15 an hour for 15 hours equal $225 a year for continuing education. So the plaintiffs in Loving vs. the IRS contend that a onetime cost of $116 and an annual cost of about $300 will force them out of the tax prep business. Sorry, but if your business can’t survive a $300 expenses (which can be passed on to clients) then you should really consider not being in that business. Sorry!

But should the continuing education cost really be a new expense for any tax preparation business? How do the plaintiffs and thousands of others prepare for the tax season? How do they keep up with law changes and paperwork requirements?

I understand filing this lawsuit under strict libertarian principles. But part of the judge’s ruling is that this law will cause “irreparable injury” because 2 of the plaintiffs would have to close their businesses. Closing a business for $300 a year plus a onetime testing fee is bogus. Especially when some of the $300 should have been expenses the business was already paying.”

So what do you think?

RDF

MORE ON THE TAX PREPARER REGULATION COURT CASE

The issue in Loving v. Internal Revenue Service, 12- cv-00385, U.S. District Court, District of Columbia, the case which put a temporary end to the IRS return preparer regulation regime, appears to be one of preparation vs practice.  The IRS can regulate “practice” before the IRS, but preparing a tax return is NOT practice before the IRS.

A news item from Bloomberg explained -

“The licensing rules are invalid because the IRS stretched a law allowing it to regulate people who ‘advise and assist persons in presenting their cases’ before the agency to cover tax preparers, U.S. District Judge James Boasberg in Washington wrote in a decision yesterday.”

The Judge observed that, “Filing a tax return would never, in normal usage, be described as ‘presenting a case’.”

I do agree that there is a big difference between “practicing before the IRS” and “preparing a tax return” - and that “preparing a tax return” is NOT “practicing before the IRS”.  I had discussed this argument here in the past in relation to the exemption from CPE and testing for CPAs and attorneys.  The question is whether the IRS has the authority to regulate preparing a tax return.

The regulation of preparers began as a perceived need by the IRS for a central registry to identify all tax return preparers.  In the past, many, but not all, preparers had applied for a PTIN to use as an alternative to entering their Social Security number on tax returns they prepared.  I was one of these preparers.  Some preparers had an IRS “CAF” number, which was related to filing a Form 2848 (Power of Attorney and Declaration of Representative) or Form 8821 (Tax Information Authorization).  The CAF number represented a file that contains information regarding the type of authorization that taxpayers have given representatives.  I also had a CAF number.   

The desire for regulation was further encouraged by a Government Accountability Office (GAO) undercover study which resulted in a report to Congress titled “Paid Return Preparers: In a Limited Study, Chain Preparers Made Serious Errors”.  The GAO sent undercover agents with two different tax scenarios to a total of 19 offices of 5 “fast-food” commercial tax chains, including H+R Block, in a metropolitan area. In only 2 instances was the correct refund calculated, but all 19 returns contained errors.

At the time someone within the IRS system, perhaps a member of its “civilian” advisory board, pointed out that a barber needs a license, but a tax preparer does not.

I do not question the IRS need to “register” all tax return preparers.  The issuance of a PTIN, with or without an annual registration fee, accomplishes this without causing any real problem or inconvenience.  Background checks and fingerprinting may be going a bit too far (thankfully the fingerprint requirement has been tabled), but requiring that preparers remain current in their own tax filings (but not payments) may be appropriate.  I do not think the IRS needs Congressional authority to “register” tax preparers.

The “plaintiffs” in this case, three previously unenrolled tax return preparers, allege that the IRS return preparer regulation regime will force them to go out of business because the requirements for becoming a RTRP are “prohibitive”.  To me this is garbage.   Spending $64 a year for a registration fee and perhaps $300-$500 a year on CPE, which any serious tax return preparer should be doing anyway, is certainly not “prohibitive” or even excessive.  (What I do find perhaps prohibitive is forcing tax preparers to spend many thousands per year for flawed tax preparation software in order to be able to file electronically)  Again – garbage.    

Some of those who oppose the regulation regime say that it will force “casual” tax preparers out of business.  As I have said before this is not necessarily bad.  Do you want a “casual” dentist filling your cavity, or a “casual” lawyer defending you in court, or even a “casual” barber cutting your hair?

The ultimate question is not if the requirements are too excessive.  It is whether the IRS has the authority to force tax return preparers to pass a test and take required CPE to remain in business 

 

I do not want to take the test (although I would if forced to) - so if this Court decision is the final word (which I do not think it will be) and it relieves me from having to take the competency exam I will not complain.  But if the decision is the final word, and it forces the idiots in Congress to ultimately legislate regulation, the result could be much worse than the current regime.

 

RDF

YOU COULD HAVE KNOCKED ME OVER WITH A FEATHER!

You could have knocked me over with a feather!

The first thing I did when I returned home on Friday night from a lunch with former co-workers from my days at the Art Center in Summit NJ (we have remained friends for decades – and get together for each of our birthdays) was check my email.  There was a message that a fellow “twit” (and fellow tax pro and tax blogger) had mentioned me in a “tweet” with a link to a news item. 

Here is where the link took me – “IRS Loses Lawsuit in Fight Against Tax Preparers”.  And here is what I learned -

“A federal judge on Friday barred the IRS from imposing a series of new regulations, including a competency exam, on hundreds of thousands of tax preparers.

U.S. District Judge James Boasberg in Washington ruled against the IRS in favor of three tax preparers who filed suit last year with the help of a libertarian legal group, the Arlington, Va.-based Institute for Justice.

The Institute for Justice argued that the IRS lacked the statutory authority to impose the regulations and said they would put tens of thousands of mom-and-pop tax preparers out of business, because the regulations were onerous and create a competitive disadvantage to the attorneys and CPAs who were exempt.

The judge's order includes an injunction that bars implementation of the regulations, which have been put in place on a piecemeal basis.

An IRS spokesman declined comment Friday on the judge's ruling.

The government can seek to appeal.”

Elsewhere on the web I found this quote from the Court decision –

“With an invalid regulatory scheme on the IRS's side of the scale and a threat to Plaintiffs' livelihood on the other, the balance of hardships tips strongly in favor of Plaintiffs. Finally, the public interest would be served by a permanent injunction because the IRS's new Rule is ultra vires [beyond its power].”

Here is what I “blogged” about the Institute for Justice’s initial complaint back in October of 2010 –

 

In “Institute for Justice Speaks Out On IRS Power Grab” at THE ROTH AND COMPANY TAX UPDATE BLOG he refers to statements by Dan Alban, a staff attorney at the Institute for Justice in Arlington, Virginia who has filed comments with the IRS on behalf of the Institute opposing the proposed licensing requirements.

In “The IRS and the Latest Licensing Outrage” at DAILY CALLER Alban says-

“This scheme will disproportionately hurt small tax-return preparation businesses and independent preparers, many of whom may be forced out of business.”

Why do those opposed to tax pro registration continue to say the costs of the new regime will be prohibitive and hurt small tax return preparation businesses and independent preparers, forcing many out of business? And that the regime will increase the cost of tax return preparation services? I wish they would explain.

You don’t get any smaller or more independent than me and my practice. As I have said over and over again the costs are minimal – and hardly worth passing along to clients. $64.25 per year ain’t going to break me – nor will a nominal one-time $100-$200 for the test.

 

{As an aside, the only thing that would possibly force me out of business is being required to submit all my returns electronically using the current system of expensive and flawed tax preparation software.}

Speaking from my specific individual situation – I would, to be honest, not be upset if there were no regulation of tax preparers. I have been operating profitably and happily for 39 years without regulation, and would just assume continue that way for my last 11 years. If regulation had not been proposed by the IRS I certainly would not be campaigning for its institution. But if it is to become a fact of business life I can see how it does have merit and provide benefits to preparers, taxpayers, and the IRS.

Now that it is in place, my only real complaints are about having to take a test after 39 years of practice without incident to show that I know what I am doing, and having to sit through 2 hours of “ethics” each year. Having to take the initial competency test is a PITA, and 2 hours of redundant ethics “education” annually is a waste of time – but it is nothing I cannot handle. Many CPE offerings had been including 2 hours of ethics for a few years now – so I have already been wasting my money.

Truth be told, regulation does not affect my practice one way or another – other than as a minor inconvenience. I am not looking to increase or expand my 1040 preparation business – on the contrary I am looking to “thin the herd”. And if I did need more clients I could easily get them by telling my existing ones I was accepting new work. I already attend more than 15 hours per year in CPE classes in federal taxation. And I am honest and ethical.

 

Since writing the above post I have become more “militant” in my opposition to the initial competency test.  It really does not prove anything – and, as I have said before, by the time one takes the test based on prior year tax law the idiots in Congress can change everything and the exam will have demonstrated that the taker is competent in obsolete tax law.  I support doing away with the test altogether, or, at the very least, providing a “grandfathering” exemption for long-time experienced tax pros like me.  I know, as everyone keeps telling me, that the test would not be a challenge for me, but I just don’t want to waste the time and money on it after over 40 years in the business.

I wholeheartedly support the annual CPE requirement (except for the annual ethics preaching), and feel it should be expanded to include CPA, attorney, and “supervised employee” PTIN-holders.  To repeat (for about the 20^th+ time) – if a serious tax preparer is not already taking at least 15 hours of CPE in federal taxation each year he/she certainly should be.  Much more than the competency test, CPE indicates that a tax preparer is knowledgeable and remains current.

As I have said a number of times in the course of the debate on tax return preparer regulation, I would much rather have the IRS institute and oversee the regulation than have it legislated by the idiots in Congress.  As I have also said many times before – the idiots in Congress can fuck up a High Mass!  My preference is, however, having the regulation regime administered by an independent industry-based non-profit organization, similar to the AICPA and the ABA.  An American Institute of Registered Tax Return Preparers if you will.

I doubt that this is the end of the story.  I do expect that the IRS will probably appeal.  Hey, maybe the appeals will take 8 years and I can retire after 50 tax seasons without having to waste time and money on a useless test!

RDF

IRS BACKS DOWN ON 2012 CPE REQUIREMENT FOR PTIN-HOLDERS

CPA Joe Kristan, who does not support the new IRS tax preparer regulation regime, reported at his ROTH AND COMPANY TAX UPDATE blog that “IRS Quietly Delays CPE Requirement Under New Preparer Regulation Scheme” -

“In a quiet admission of failure, the IRS Return Preparer Office posted on its Facebook page that it won’t be enforcing the new 15-hour CPE requirement for Registered Tax Return Preparers this year:

‘We’ve received some questions from people who didn’t get their 15 hours of CE completed in 2012. Here’s the deal: In addition to the 15 hour requirement for 2013, you must also make up any hours not completed in 2012. There is no need to designate or notify us that hours earned in 2013 are for 2012. Be sure to keep records of the programs you attend. Additionally, for those people who answered “no” to the CE requirement question on their PTIN renewal, we will be sending them a letter soon advising them they are still responsible for the hours.’”

Since the IRS has given in on this aspect of the regulation procedure, perhaps it will also give in and extend the time to take and pass the RTRP initial competency test.

Of course the better solution is grandfathering!

RDF

RETURN PREPARER OFFICE STATISTIC UPDATE

The IRS has released the latest statistics on the return preparer regulation regime, with data current as of January 3, 2013.

Of the 744,658 individuals with a current PTIN, 320,172 still need to sit for and pass the RTRP test.

While these PTIN-holders have a year to pass the test, until December 31, 2013, let’s be honest.  No serious tax preparer has the time to take the test until after the April 15^th filing deadline.  So that leaves 8½ months.

So Prometic will need to provide a testing opportunity for 753 individuals per week in each of the 50 states.  Is that physically possible?

While the thought among fellow tax-bloggers is that the IRS will not extend the deadline, I still ask if the Service will force 100,000-200,000 tax preparers out of business.  This would be disastrous for all parties – the IRS, taxpayers, and the tax pro industry. 

The only solution is grandfathering!

RDF