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

SO LONG, FAREWELL, AUF WIEDERSEHEN, GOOD NIGHT!

Joy to the world - tax season’s here.

I’ll soon be flush with cash!

Let every client be organized,

and give me all I need, and give me all I need,

and give me all I need to prepare their returns!

My 42nd tax season will officially begin tomorrow - let the deluge begin!

As is my custom, due to the demands of the filing season I will be taking my annual “tax season hiatus” from posting to THE TAX PROFESSIONAL and THE WANDERING TAX PRO from tomorrow through April 15th.

Between now and April 15th I will barely have time to relieve myself let alone blog!  Nor will I have time to respond to comments. If a comment requires a response I will do so after April 15^th.

I promise that once the tax season is over I will be posting more frequently here at TTP.   

“Talk” to you when it is all over!

RDF

BTW – be sure to stop by THE WANDERING TAX PRO tomorrow for the annual posting of my TWELVE DAYS OF TAX SEASON!

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?

RDF

I HAD TO LAUGH . . .

I had to laugh while reading all the tax profession “insiders” – i.e. representatives of various membership organizations, fast food tax preparation chains, software providers, and the IRS itself – complain about the terrible earth-shaking consequences that will come from the shutting down of the IRS tax preparer regulation regime by the US District Court.

I have been preparing federal and state income tax returns for individuals in all walks of life for over 40 years.  Prior to the initiation of the IRS program in 2011, the tax preparation business has never been regulated to any real degree.  Obviously crooked tax preparers, when discovered, were prosecuted for tax fraud and other crimes, and there were certain regulations under Circular 230, and “preparer penalties”. 

But for as long as I have been in business, and for the years before, there were no real restrictions to or regulations for being able to prepare income tax returns for a fee.   As I said in my post on preparer regulation/licensure/certification – any cafone could hang out a shingle as a “professional tax preparer”.  And while many a cafone did, many competent and ethical individuals also did, and in doing so provided an invaluable service to our voluntary tax system.  

And this tax system has survived and functioned all these years.

As I stated in a previous post here at TPP, I did not object to the IRS regulation regime, except for two of its regulations, and would gladly accept industry-based, or even IRS, oversight of the tax preparation business.  But I would also be just as happy to continue operating without regulation or stricter oversight, as I have been for the past 40 years.

Some kind of certification program, required or voluntary, would benefit the industry and the public.  But continuing to have no special certification or regulation program would not hurt the industry and the public.

RDF

JUST SAY "NO" TO THE STAY OF THE INJUNCTION

Late Wednesday night, January 23, the Justice Department filed for a 30-day stay of the injunction so the IRS could respond to the court's decision in Loving v IRS.

I do not believe the IRS should be able to continue to offer the competency test, and accept reservations and payments therefor, while the decision is being appealed.  Here I agree with Dan Alban and the Institute for Justice.

If the decision is eventually upheld, those tax preparers who paid for and took the competency test will have wasted their time and money (not only on the actual test, but also on classes to prepare for the test).  The number of tax preparers who will have done so will increase if the stay of the injunction is granted. 

If the IRS eventually wins its appeal it can then continue with the testing. 

Nobody will be hurt any further if the injunction stands until the final appeal is decided.  All that happens if the IRS wins is that it will have to push back its original December 31, 2013 deadline for passing the test.

So “just say no” to the stay of the injunction.

RDF

TAX RETURN PREPARER REGULATION, LICENSURE, AND/OR CERTIFICATION

In light of current developments I have decided to publish in detail my opinions on the subject of tax return preparer regulation, licensure, and/or certification.

Since the beginning of the IRS inquiry I have supported the concept of “licensing” tax return preparers. 

Prior to the IRS attempt at regulation, any cafone could hang out a shingle as a “professional tax preparer”. A person with no knowledge or experience could simply purchase a tax preparation software package and offer themselves up to the public as a tax expert.  There was no standard to assure that a person who calls himself/herself a “tax preparer” actually knows his arse from a hole in the ground when it comes to the Tax Code.

One morning, several years ago, while walking on the main commercial street of my section of Jersey City I saw a sign in the window of a barber shop that read “tax returns prepared here”. You could apparently get a haircut and a manicure and have your 1040 prepared all in one sitting! Many years ago, before I had my own office, I had considered renting a desk in an insurance or real estate office.  iI never occurred to me to rent a chair at a barbershop.

Early in my career, when I was working with my mentor Jim Gill at Journal Square (where the “Jersey Bounce” started), I came across a near-vacant room in the corner of the old bus station with large storefront windows. Inside the room was a person sitting on a folding chair at a card table with an adding machine – there was no other furniture or fixtures in the room. A hand-printed cardboard sign in the window advertised “Tax Returns Prepared Here”. What was sad was that I once actually saw a person in the room getting his return prepared.

I believe that an RTRP designation, or some similar designation, whether required or voluntary, would put the competent, experienced, and ethical previously “unenrolled” preparer, like me, on an equal footing with the CPA in the eyes of the general public. It would dispel the unfounded “urban tax myth” that a CPA is a tax expert.  CPAs would no longer erroneously “own” the tax preparation business, as the AICPA told a member it believed they did.  The mere possession of the intials CPA does not in any way, shape or form indicate that the possessor has any knowledge of the Tax Code or any experience in preparing 1040s.  

My objections to the final IRS regulations for the program have been twofold –

(1)  All individuals who wish to prepare 1040s for compensation should be subject the same requirements.  CPAs, attorneys, and “supervised employees” should not be exempt from either any testing requirement or the annual CPE in federal taxation requirement (EAs have already been tested and already maintain CPE in federal taxation).

(2)  There should be a “grandfathering” exemption from the competency test for long-time experienced preparers who have proven that they remain current by having taken the currently required amount of CPE during a multi-year “look-back” period.

I do not feel that tax preparers MUST be regulated, but I do not object to proper regulation.  If the IRS did not initiate its program I would not be calling for regulation.  Now that the court has shot down the current IRS program I will not be calling for its reinstatement, but will not fight against any eventual reinstatement. 

To be honest, licensure or regulation, even as was in effect under the IRS RTRP program, would not affect my individual practice one bit.  I would continue to operate my 1040 practice in the same way under regulation as I did prior to regulation.

I have had a PTIN since 1999, as an alternative to having to enter my Social Security number as preparer on tax returns I prepare and sign.  For at least the past 25 years I have maintained an average of perhaps 24 hours of CPE in federal taxation, as well as state tax CPE, each and every year.  While I do not want to be forced to take the RTRP competency test, having to do so would not force me to abandon my practice.

You don’t get any more “mom and pop” than my practice.  I have no employees, and never have.  I do not have an office open to the public.  For the past 10 years or so I have been working out of my home, occasionally visiting clients’ homes to pick up their tax information.  To say the requirements of the IRS regime, especially the CPE requirements, were “onerous” and “prohibitive” is ridiculous.  They would certainly not force this “pop” (no mom) out of business.

I firmly believe that ongoing continuing professional education is a MUST to remain in business as a tax professional.  I have always said that any serious tax preparer who is not already maintaining the equivalent of at least 15 hours of continuing education each year should be.  The cost of obtaining and verifying such continuing education is a basic “ordinary and necessary” (and I do mean necessary) cost of being a tax preparer.

I prefer to attend live CPE classes as a major component of my continuing education.  But I also continually “self-study”.  My annual continuing education “budget” is not large, and I know that there are much less expensive, and even free, alternatives to live seminars and workshops.

I do believe that requiring all CPE providers to be individually approved by the IRS is going too far and should not be part of any regulation, licensure, or certification program.

As a point of information, I was “self-taught” in the “art and science” of tax return preparation decades ago by way of actually preparing tax returns, initially using prior returns as a guide, under the guidance and supervision of an experienced tax professional.      

CPA Joe Kristan, a vocal opponent to IRS regulation of tax preparers, believes that the IRS regulation regime would force many “casual preparers” out of business.  I will admit that he may be correct to a degree – but I also believe that this is not necessarily a bad thing.

There are a good number of individuals out there who prepare 1040s for friends, coworkers, neighbors, and referrals therefrom for a fee, based merely on their experience preparing their own returns over the years and from reading the new IRS Pub 17 or 1040 instruction book and/or other sources.  These individuals may be sincere and feel they are providing a service to their “clients”.  Yet they may not be, and very probably are not, providing the best service to these clients.  I would consider these individuals “casual preparers”.

I am constantly hearing nonsense from my clients that they have attributed to such “casual preparers”.  If such “casual preparers” are forced out of business because of the RTRP requirements this is good for the taxpayer public and the tax preparation industry and the Internal Revenue Service.     

As I have asked in response to Joe’s assertion, would you want a “casual” electrician wiring your kitchen, or a “casual” dentist filling a cavity, or a “casual” architect designing your home?

Joe also believes that the government regulation of tax return preparers would not substantially reduce tax fraud.  Here I agree completely with Joe.  But that is not the main reason for such a regulation, licensure, or certification program

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 current members of Congress is well known.

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 that I have proposed.

So there you have it – my opinions on the subject of tax return preparer regulation, licensure, and/or certification.

So where do we agree – and disagree?

RDF