Why Regulate Preparers?
Requiring Preparer Tax Identification Numbers
To Test Or Not To Test?
Continuing Education Requirements
Who Would Regulate Preparers?
When Would Any Changes Go Into Effect?
The introduction of tax preparation software for commercial preparers has made
it possible for people who never would have considered it before to start their
own tax preparation businesses, according to remarks presented by OPR Director
Karen Hawkins at the fall meeting of the American Bar Association. She was
particularly critical of those "who use this software and rely on it as if it
does everything for them." She noted that the software makers have expressed
the view that their product does not make anyone a tax expert.
The number of taxpayers preparing their own returns has declined by two-thirds
from 1993 to 2005, Hawkins said. The "vast majority" of software-prepared,
paper-filed returns and standard electronically filed returns are coming from
paid preparers, totaling nearly 90 million, she said. In consequence, because
many of these paid preparers rely on software and do not have sufficient (or
sometimes any) tax knowledge to properly prepare a return, Hawkins stated that
this has become a matter not only of protecting the public but also of
protecting the tax system itself. "Preparers can be facilitators of tax
compliance, or they can be enablers of tax noncompliance," she said, referring
to the perspective with which she views the review project.
Requiring Preparer Tax Identification Numbers
There have been discussions about whether the preparer's tax identification
number (PTIN) should somehow be coded so IRS can track types of preparers, such
as whether a preparer is a certified public accountant or a lawyer, Hawkins
said. Hawkins said she thinks requiring the registration of preparers is
something everyone agrees should happen so the service can identify the
preparer population and track its conduct.
One item from the 2008-2009 guidance business plan on which the Treasury
Department is still working is regulations under tax code Section 6109 that
would mandate the use of preparers' tax identification numbers (PTINs), said
Joshua Odintz, acting tax legislative counsel at Treasury who also spoke at the
ABA meeting.
The current PTIN system, for which preparers may apply via IRS's website or
through a form, is not mandatory, he said. The guidance Treasury is
contemplating proposing would require that, the identifying number of the
signing return preparer be the PTIN for returns filed after Dec. 31, 2009, he
said. "We need to have a better understanding of the tax return preparer
community," Odintz said. "Requiring this number will allow us to do so."
Hawkins said she thinks it is legitimate to consider having individuals take
some sort of test to gain authorization to prepare tax returns. Questions that
have arisen on this issue include whether certain groups or individuals should
be exempt from an exam or if they can be "grandfathered" into the system, she
said.
Individuals currently subject to Circular 230 believe they should not have to
take an additional test to qualify to register as paid preparers, Hawkins
mentioned by way of example. However, Hawkins, who is a licensed lawyer in
California, said that lawyers and CPAs have yet to convince her that there is
anything inherent in attaining their licenses that makes them qualified or
competent tax return preparers. "I am not convinced that they should be
exempted from testing by the mere fact that they are licensed by their state
bar or by their state accountancy board," she said.
In addition, many unenrolled and unlicensed preparers who have been preparing
returns for a long time support the grandfathering concept, as they do not
think they should have to take a test this late in their careers, she said.
These individuals often do not enroll or become licensed because they just want
to prepare returns and do not want to represent taxpayers in front of the IRS,
Hawkins said. She noted that groups like NSA, H & R Block and the ABA have
expressed the view there should be some kind of examination process to test an
individual's minimum tax competency, with some exceptions for those who have
already taken a competency exam that IRS deems sufficient. The consensus at the
Tax Preparer Forums held by IRS, most recently on September 30 in Chicago, is
that "minimum competency" is knowledge of the tax law as found in Publication
17. Clearly, since any ACAT examination is more difficult than the Pub. 17-based
test contemplated above, we have asked the IRS to exempt from any testing
requirement ACAT credential holders who have passed a valid ACAT examination.
Another element that needs to be addressed is what would happen to preparers in
states that already require some sort of licensing, such as California and
Oregon, she said. NSA also notes that some states, like New York, require
registration for some tax preparers and these registration requirements would
also have to be reconciled with any new federal rules.
Continuing Education Requirements
Even the potential requirement for continuing education has caused some
controversy, according to Hawkins She noted that some individuals, primarily
CPAs and attorneys, are required to have a specified number of hours on
continuing education, but that CPE is not necessarily required to be
tax-related, raising the question of what to require for those who are
currently licensed and must participate in continuing education anyway. IRS
does not want to increase burden on anyone concerning continuing education,
"although I would say that I don't think it would do anybody any harm to have
to take maybe a couple extra hours a year that was on current developments and
hot topics in tax law," Hawkins said. She gave the distinct impression that
there would be a requirement for tax-related CPE for those who are not
otherwise required to have any CPE.
There has also been discussion about who will oversee the regulation of tax
preparers, Hawkins said. Some people initially suggested that OPR do it, but it
is not as clear anymore how the regime should be implemented and what body
should oversee that, she said. It is being debated whether it should be
overseen internally or whether there are "discrete portions that can be farmed
out" to third parties, Hawkins said.
As practitioners are aware, the IRS computer system is not as robust or as
technologically advanced as one would hope. In fact, NSAlert readers learned in
our issue of July 31, 2009 that IRS data on tax preparers is stored on 22
different systems and the systems are not integrated. For that reason, NSA has
suggested that a third party entity be created to regulate tax return
preparers. If nothing else, this entity could at least begin with a new
computer system.
When Would Any Changes Go Into Effect?
The answer to the effective date question is dependent on whether the IRS could
impose any new requirements via regulations or whether legislative changes are
necessary. Hawkins said IRS would do the most it can without having to ask for
legislation. She said she does not anticipate creating additional preparer
penalties right now and thinks the regime currently in place will work as long
as IRS enforces it a bit more rigorously.
Most practitioners and professional organizations, including NSA, have expressed
the view that any tax preparer regulation effort must be coupled with a
"robust" consumer education effort to be effective. In particular, consumers
should be reminded it is their obligation to require a paid preparer to sign
any return. This education effort will in all likelihood require additional
funds in the IRS budget.
