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Fix the Tax Code Friday: Registration of Tax Preparers

January 15, 2010 · 16 comments

For the 2011 tax season, the IRS has announced that it will require commercial tax return preparers to register with the agency and pass a competency exam. Commercial tax preparers will also be subject to continuing education requirements and ethics rules. IRS Commissioner Doug Shulman enthusiastically supports the idea, calling it “a game-changing event for the tax system.”

The reaction by commercial preparers has generally been positive with many noting that attorneys, CPAs and enrolled agents must demonstrate initial competency by taking an exam in order to practice and are already to continuing education requirements and ethics rules. However, some preparers claim that the increased oversight is burdensome and will drive up costs.

So, today’s Fix the Tax Code Friday question is:

Are you supportive of the IRS decision to require commercial tax preparers to o register, pass a competency exam and be subject to continuing education requirements and ethics rules? Or is it too much of a good thing?

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{ 16 comments… read them below or add one }

1 Evan January 15, 2010 at 4:56 pm

While I am generally against regulations, the tax return for many people is the most important reoccuring document in their life, so why put it in the hands of just anyone with an office front.

We both had to pass the Bar to be able to practice law why shouldn’t someone have to pass an appropriately positioned test to represent someone’s taxes to the IRS?

2 Terry January 15, 2010 at 7:48 pm

My problem with this is who is going to be required to do this. If you are an accountant (CPA) you’re exempt from this requirement, as are many others along that line. As a tax preparer some of the worst returns I’ve had to amend for people have come from these CPA’s, they do not know tax laws, they understand accounting and bookkeeping but that doesn’t make them knowledgeable about taxes.

As a preparer I believe something like this is needed, but I think that ALL people who do taxes should be required to be tested, not just preparers. In many firms one person prepares the taxes but since they aren’t signing them, the CPA is, they will not be required to pass a test, so a large group will still not be required to show any knowledge of tax law or current tax rules.

3 Mary O'Keeffe January 15, 2010 at 11:06 pm

Tax law has gotten exponentially more complicated with each passing year.

Until such time as Congress vastly simplifies, I would like to see all of the following take a tax certification exam annually:

1) paid preparers of all types (regardless of whether they are EA’s, CPA’s, attorneys or none of the above.) I agree with you that any employee who was materially involved in preparing tax returns should be certified, not just a “signing preparer.”

2) ALL employees of the IRS from the Commissioner on down.

3) The Secretary of the Treasury and any Treasury Dept employees whose jobs relate in any way to making tax policy.

4) Anyone on the White House staff whose job relates to tax policy in a significant way.

5) All members of Congress who serve on committees that write tax laws, and their staffs.

4 Bo Ives January 16, 2010 at 11:44 am

I love Mary’s comment, especially requiring Congress to be tested on its own work.

5 Gary January 16, 2010 at 1:39 pm

I’m an attorney/CPA and agree return preparers and advisors should have some form of registration. Are there unknowledgeable CPA’s and attorneys out there regarding tax rules, of course, but the licensed professionals have a very important asset to lose if they fail to meet professional standards – their license. I too have seen tax returns prepared by other licensed professionals where I believe the preparer was probably negligent, but I’ve also seen returns from non-licensed professionals where really basic points were missed. I started working in public accounting in 1984 – I was afraid then that proposed tax simplification was going to eliminate a large part of my potential work. As the federal tax code has been continually modified, I’m no longer worried. In fact, I’d like my children to go into the profession, they, unfortunately, think I’m a dork.

6 Dave Weigel January 17, 2010 at 4:29 pm

Construction contractors are required to be licensed by the govt yet that doesn’t prevent shoddy work or corrupt business practices. Drivers are required to be licensed by the govt yet that doesn’t prevent bad drivers. Lawyers are required to be licensed by the govt yet the industry seems driven by ineptness and corruption. Doctors are required to be licensed by the govt, yet the industry is plagued with malpractice suits. Obviously the license isn’t preventing problems (and it ends up creating numerous other problems for those of us who care about freedom and personal choice in our health care). The state of Michigan has a list of over 600 professions on its website describing the required licenses for each profession. There isn’t a single one of those professions the license requirements have been beneficial to consumers. Anyone who thinks licensure and registration will be a benefit to anyone other than the govt isn’t using their brain.

7 EllAnn January 17, 2010 at 4:43 pm

I agree with all that has been previously said! Although I’m now retired, I worked for H&R Block for over 25 years and I’ve seen bad returns prepared by all levels of preparers. And sometimes I’m sure the problem wasn’t just lack of knowledge, it was out and out fraud, even from people who had a professional license at stake.

8 Jill January 18, 2010 at 12:04 pm

I agree with Dave. All these certifications show is that the preparer has had training. Certifications don’t prevent fraud or negligence or a violation of ethics. It’s just more overregulation. And frankly I think it’s nothing more than a ploy for government entities to raise money. Afterall, preparers would have to pay exam fees or an added license fee on top of everything else they already pay to maintain their designation.

9 Nikki Kratzner January 18, 2010 at 10:26 pm

As a paid tax preparer, I think it’s a great idea. Of course it’s not going to eliminate unethical preparers but it will cut down on the number of uneducated preparers that don’t give a second thought to taxes for 8 months a year. The same people who raid the post office blank tax return pile and throw together some returns for a quick buck. I’m hoping to pass the EA exam by the 2011 season but if not then I’ll gladly take the IRS’s or prometrics or whoever’s test it ends up being.

10 Christopher January 19, 2010 at 1:43 pm

I agree that paid preparers need to be certified, unless otherwise covered by an appropriate professional license. I believe that CPA’s already have enough CPE requirements (40hrs annually/80hrs in a two year period) and I personally do not want to have to worry about a test each year. Obtaining a CPA license rather difficult (just sat for the REG!) and should provide a high barrier to the profession. I agree with the above posts, there are some bad apples in the profession and just because you have a license, doesn’t mean you know how to prepare taxes (like an auditor doing a friend’s business return). I also think that Attorney’s should be exempt from whatever certification process that comes out of this as well. With all of this said, I would like to add the following:
1.) in order to be exempt from certification process, CPA’s and Attorney’s would have to obtain at least 20hrs of tax specific CPE/CU per year in order to tax returns. I know that in many states, 20hrs will meet Attorney’s CU requirements, so maybe a double win on that.

2.) EA’s would be allowed to be exempted, but only if they obtain 20hrs of tax specific CPE. (4 hours beyond current general requirement of 16hrs).

3.) (per Terry’s post) If you are materially/immaterially participating in the preparation of return(s) but are not actually signing the return; you are exempted from the certification [Exemption by Proxy as I'd call it]. But the person signing the return must be professionally licensed and meet the CPE/CU requirements as outlined above. The assumption is that the CPA/Attorney/EA all have a license on the line (as Gary mentioned). Ideally, getting everyone certified would be great, but there are a couple of reasons not to get ALL the staff certified (esp data entry people; just teach them the tax software); it would be cost prohibitive (esp in smaller firms), it would make temporary hires more difficult, and it would generally slow down an already hectic tax season.

11 Christopher January 19, 2010 at 2:08 pm

As for Mr. Weigel’s post, I understand what is being said but wholeheartedly disagree. Licensing is essential to many fields and helps keep the profession to a certain standard:
1.) By providing some obstacle or barrier of entry to a field, you are keeping out the bottom. In relation to this topic, preventing just anyone from hanging a shingle to do tax work helps raise the bar, even if only a little.

2.) Licensing does benefit consumers; take bonding and indemnity/insurance requirements for example. These policies help the consumer in the event that things go wrong. A plumber comes out to fix a leaky toilet… whoops, he does a poor job and floods my house that causes more damage than he can obviously pay to repair. His profession requires bonding and insurance (at least in TN it does) in order to operate. My house gets fixed because of this requirement.

3.) Licensing provides a very important concept also: LEGAL RECOURSE

4.) Licensing improves public perception and helps garner public trust (well, at least in the accounting and legal professions). Someone sees a license or certification, there is an assumption of some level of competence communicated.

Mr. Weigel, as a CPA, do you really think ” There isn’t a single one of those professions the license requirements have been beneficial to consumers. Anyone who thinks licensure and registration will be a benefit to anyone other than the govt isn’t using their brain.” I understand our field is quasi self-regulated, but I really think that there are benefits to requiring licensing as my points above show. CPA licenses are regulated by state accountancy boards and are required by these agencies to practice in that particular state (I’m stating this for the post, you obviously know this). So I would argue that there is some benefit. This would be entirely different if say, we were required to join the AICPA or similar organization to practice. Opinion?

12 Dave Weigel January 19, 2010 at 11:33 pm

1. “keeping out the bottom”
How? Licensing doesn’t “keep out the bottom” in other professions. It won’t in tax prep either.

It will be a barrier to entry; therefore, reducing competition. That is why H&R Block, JH, Liberty, etc. as well as most EAs, lawyers, & CPAs are for it.

Since those not signing the return are exempt from certification, just as you desire, it will guarantee the bottom will be protected as many of them are now. All the inept preparers at Block will keep their jobs just because they don’t sign the return.

Used car dealers that prepare returns for free will still be preparing returns without certification.

Here in Michigan, due to the huge increase in licensing fees (for which the contractor receives no benefit in return), many building contractors are not renewing their license.

2. “indemnity/insurance”
3. “LEGAL RECOURSE”
I didn’t realize these weren’t available without a govt license. I guess I’ll have to concede that this isn’t an idiotic and stupid idea but is actually the best thing to ever happen to the profession.

4. “improves public perception”
Which is a huge problem. It doesn’t improve the profession, most likely weakens the profession since it limits competition, but the public now thinks the inept preparer at Block knows what he is doing because he is approved & licensed by the govt. Once again, the bottom get protected by bad laws.

13 Jeff Day January 25, 2010 at 8:39 am

There is no testing for the 2011 tax season only registration according to the IRS: http://www.irs.gov/taxpros/article/0,,id=218611,00.html

Mr Weigel, I am an enrolled agent that works for Block. I promise you that I have corrected more returns for various CPA’s than any vice versa. I have seen more than a few occasions where members of the CPA world , coerced people into forming various corporations entities that accomplished one goal and one goal only, increased fees for the CPA firm.

I believe there are no small percentage of persons within HRBlock that should get out of the business. I believe there are no small percentage of persons within HRBLocks competitors that should get out of the business. I believe there are no small percentage of persons within CPA’s that should get out of the business and it does not accomplish anything by trying to “point fingers”.

Please read my articles on taxes on a local Evansville, Indiana online newspaper on taxes during tax season: http://city-countyobserver.com/?p=1103

Jeff Day

14 Dave Weigel January 26, 2010 at 12:48 am

Jeff, I don’t see the relevance your complaints have to registration. Though your anecdotal evidence agrees with my point that registration will not benefit the consumers since those you’re complaining about are exempt from registration requirements.

15 Kevin February 2, 2010 at 9:16 pm

Anecdotal evidence is pretty worthless, but since it carries so much weight with you, Terry, I’ll relate that I worked in audit at the CA FTB and most of the “knucklehead” errors I found in desk audits were from EA’s, particularly those who were from outside California.

When I say “knucklehead errors” I mean things like not backing out state taxes as an itemized deduction for state income tax purposes, or counting home mortgage interest twice. I won’t even get into how many times I had to explain that the statute (not “statue”) of limitations in CA is four years, and not three. I also won’t tell you how many times I had to read the verbatim language of the Cal Rev & Tax Code to people who should be able to open those volumes on their own.

That said, I don’t fool myself into thinking that my work represented a statistically meaningful sample. Apparently you do. Maybe you could take statistics and see if it’ll qualify for CPE?

16 Liz Zitzow March 17, 2010 at 11:27 am

I’m sitting in a room in London with 40 tax specialists, top notch experts in international tax. It’s the European American Tax Institute’s annual Individual Tax and Wealth Management Update course. Many of the people in the room are EAs and attorneys. We all specialize in multinational tax issues with a US focus. And only five of us can register for this silly programme due to the PTIN requirement. Most of the people at the table are not US citizens, and wanting a PTIN is not considered a valid reason for getting an ITIN. And an ITIN or an SSN is required before you can apply for a PTIN.

At the same time that the IRS is making it impossible for offshore tax specialists to comply with this new rule, they’ve stepped up penalties and compliance on all offshore issues.

As long as they’re socking the heck out of Americans abroad, the least they can do is allow PTIN registration to be an acceptable reason to apply for an ITIN. And they should allow a two-year lead-in for offshore preparers to register as they were silly enough not to think of this in time for all these offshore experts to get registered, much less come up with a method that works for them.

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