monitoring tax return preparers
Licensed Tax Professionals Wary of Competing IRS Credential
Registration and testing of return preparers should not create a competing credential, tax professional associations told the IRS on July 30. IRS Commissioner Douglas H. Shulman emphasized that testing and registration are just two ideas for improving the Service's oversight of return preparers but did not rule out automatically exempting CPAs, enrolled agents, attorneys and other credentialed professionals from a new regulatory framework. However, the IRS's renewed interest in oversight of return preparers may be upstage by pending financial protection legislation, which could regulate tax return preparation and tax planning.
Oversight Review
In June, Shulman announced a comprehensive review of the IRS's oversight of return preparers "Return preparer oversight is on the front burner," Shulman said.
The July 30 meeting was the first in a series of nationwide public events. In addition to representatives from tax professional associations, representatives from consumer groups also spoke. Shulman said he plans to make a broad set of recommendations to improve return preparer oversight, including possible legislative proposals, by the end of the year.
Registration and Testing
Before the IRS can start registering and testing return preparers, it will have to measure the size of the preparer community, Larry Gray, government affairs liaison, National Association of Tax Professionals (NATP), said. Gray noted that there may be as many as 1.2 million individuals engaged in return preparation.
Additionally, the IRS will need to design and administer a certification test. The IRS could adapt the certification test for volunteer income tax return preparers to paid preparers, Bonnie Speedy, national director, American Association of Retired Persons (AARP) Tax-Aide, said. "The IRS certifies 67,000 volunteer return preparers annually and all volunteer return preparers must sign a standard of conduct." Speedy noted that credentialed preparers are not exempt from the certification test. Moreover, the AARP markets that its volunteer return preparers are "IRS certified," Speedy added.
The IRS will also need to decide if certain individuals are exempt from testing or otherwise "grandfathered." Practitioners who have already demonstrated their competency by passing a valid examination should be given a waiver of the examination requirement, Jim Nolen, president of the National Society of Accountants (NSA), said. An exemption based on experience alone, Francis X. Degen, chair, government relations committee, National Association of Enrolled Agents (NAEA) cautioned, is inadequate to measure competency. "Bernie Madoff had 20 years of experience as financial planner and we know how that turned out."
Credentials
Registration and testing should not give taxpayers the impression that the IRS has stamped its seal of approval on a preparer or take away from existing credentials, several practitioners noted. "We are very wary of describing any IRS registration number as a credential," Armando Gomez, vice chair, government relations, American Bar Association Section of Taxation, cautioned. "The IRS should not superimpose an additional set of rigors on individuals who already maintain a professional competence," Mike Dolan, chair, IRS Practice and Procedures Committee, American Institute of Certified Public Accountants (AICPA), said.
CPAs, enrolled agents, enrolled actuaries, enrolled retirement plan agents, appraisers and attorneys are governed by the rules of practice in IRS Circular 230. "Mere return preparation has long been interpreted as not practicing before the IRS for purposes of Circular 230," Gomez noted. However, it may be time to revisit this traditional approach. "At some level, Circular 230 ought to be an orientation point for preparing returns," Dolan added.
Curbing Abuses
The move to register and test return preparers largely stems from abuses by unscrupulous preparers. Two areas --the earned income tax credit (EITC) and refund anticipation loans (RALs) --have generated significant complaints from consumers, Jean Ann Fox, director of financial services, Consumer Federation of America, said. "The ability to sell a RAL with a return provides a financial incentive to inflate the taxpayer's return," Fox said.
Many of these concerns, such as abuses of the EITC and RALs, are not problems that CPAs encounter, Thomas Ochsenschlager, vice president, Taxation, AICPA, told CCH. However, they can damage the reputation of the tax profession.
Pending legislation
The IRS may face competition in regulating return preparers if Congress passes a new federal consumer financial protection act. Pending legislation (HR 3126) would appear to include authority for a new Consumer Financial Protection Agency to regulate tax planning or tax preparation services, the ABA Taxation Section noted.
Several state CPA associations, including the Arizona Society of CPAs and the Ohio Society of CPAs, have also raised concerns about the scope of HR 3126. "The bill does not recognize that CPAs are licensed by the state boards of accountancy, operate under strict ethical standards and, with regard to federal tax related services, have to meet the strict regulatory requirements of the IRS," according to the ASCPA. HR 3126 has been referred to the House Committee on Financial Services.
Statement on Behalf of the American Bar Association (ABA) at the Internal Revenue Service Public Forum on Tax Return Preparer Review
July 31, 2009
Internal Revenue Service : Public forum : Tax return preparer review : Statement of American Bar Association .
July 24, 2009
Hon. Douglas Shulman
Commissioner
Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, DC 20224
Re: Internal Revenue Service Public Forum on Tax Return Preparer Review
Dear Commissioner Shulman:
Enclosed is the statement prepared for the Public Forum on Tax Return Preparer Review to be presented by Armando Gomez, Vice Chair Government Relations. The statement represents the views of the American Bar Association Section of Taxation. They have not been approved by the Board of Governors or the House of Delegates of the American Bar Association, and should not be construed as representing the policy of the American Bar Association.
Sincerely,
Stuart M. Lewis
Chair-Elect, Section of Taxation
Enclosure
cc: Eric A. San Juan, Acting Tax Legislative Counsel, Department of the Treasury
Mark Ernst, Deputy Commissioner, Internal Revenue Service
Karen L. Hawkins, Director, Office of Professional Responsibility, Internal Revenue Service
Nina E. Olson, National Taxpayer Advocate, Internal Revenue Service
Clarissa C. Potter, Acting Chief Counsel, Internal Revenue Service
STATEMENT ON BEHALF OF AMERICAN BAR ASSOCIATION SECTION OF TAXATION BEFORE THE IRS FORUM ON PREPARER REGULATIONS
July 30, 2009
Good morning. My name is Armando Gomez. I appear before you today in my capacity as Vice Chair for Government Relations of the American Bar Association Section of Taxation. This statement is presented on behalf of the Section of Taxation. It has not been approved by the House of Delegates or the Board of Governors of the American Bar Association. Accordingly, it should not be construed as representing the policy of the Association.
The Section of Taxation appreciates the opportunity to appear at this forum today to discuss proposals for ensuring that tax return preparers are both ethical and competent. Because tax return preparers play an important role in the efficient and effective administration of the tax laws, these proposals complement the efforts of the Internal Revenue Service (the "Service") to regulate tax professionals and increase the level of taxpayer compliance. 1
American Bar Association Section of Taxation
The Section of Taxation is comprised of more than 22,000 members. Our members include attorneys who work in law firms, corporations and other business entities, government, non-profit organizations, academia, accounting firms and other multidisciplinary organizations. As the nation's largest and broadest-based professional organization of tax lawyers, one of our primary goals is to make the tax system fairer, simpler and easier to administer.
Our members provide advice on virtually every substantive and procedural area of the tax laws, and interact regularly with the Service and other government agencies and offices responsible for administering and enforcing such laws. Many of our members have served in staff and executive-level positions at the Service, the Treasury Department, the Tax Division of the Department of Justice, and the Congressional tax-writing committees.
The Need for Tax Return Preparer Performance Standards
Recent studies indicate that a majority of taxpayers continue to pay a third party to prepare their individual income tax returns. 2 Paid preparers often advise taxpayers on issues for which guidance is unclear. They explain record-keeping and other requirements. Many taxpayers use them to navigate their way through overlapping or recently changed provisions. The complexity of many provisions applicable to ordinary taxpayers, such as the earned income tax credit, the dependent care credit, child credit, and education credits, create particular needs for preparer assistance.
Despite the complexity of the Internal Revenue Code and the Treasury Regulations, paid return preparers are not subject to educational or other competency requirements. In contrast, attorneys and CPAs must complete prescribed courses of study and then pass State licensing exams to practice their professions. Enrolled agents who do not have prior experience working for the Service must pass a written examination to demonstrate their knowledge of tax law and procedure. In addition, attorneys, CPAs and enrolled agents ("Regulated Professionals") are subject to ethical requirements and, in most jurisdictions, continuing professional education requirements.
Paid preparers in most States are not subject to regulation by State licensing authorities. Their situation contrasts with that of attorneys and CPAs, who are subject to oversight by the State bars and accountancy boards. In addition, Regulated Professionals are subject to oversight by the Office of Professional Responsibility with respect to their practice before the Service pursuant to Circular 230. By contrast, paid preparers are subject only to the Internal Revenue Code's preparer penalties. 3
Improving the quality of tax return preparation will benefit all taxpayers. First, individuals who use paid preparers will be less likely to file erroneous tax returns. Because erroneous returns result in unexpected tax liability, imposition of interest on back taxes, and time spent resolving problems, even inadvertent errors cause hardship. In addition, correcting erroneous returns diverts already limited Service resources from other taxpayer education and enforcement activities. Second, many of the taxpayers who consult return preparers are those who are least likely to understand complicated tax rules, i.e. , taxpayers with little education, recent immigrants and others having limited comprehension of the English language and/or our tax system, or who are least likely to have ready access to electronic filing alternatives. Given their circumstances, such taxpayers - perhaps more so than others - need to know that their return preparer is competent and ethical.
The Section of Taxation supports efforts to establish minimum qualifications for return preparers. Such qualifications could include examinations to test technical knowledge, competency to prepare returns, and familiarity with the standards of tax practice required of preparers. Of course, examinations are not the only means for assessing competence. Regulated Professionals who already have demonstrated competence through education and licensing, as well as paid preparers who have satisfactorily completed competency examinations in States such as Oregon that administer such examinations as part of their preparer regulatory regimes, could be deemed to have demonstrated the minimum competence to prepare returns going forward.
To ensure that impediments are not created which adversely affect recruiting of new tax return preparers, interim qualifications might be provided for new return preparers who complete certain basic examinations (which could be available on-line) and who are subject to supervision by more experienced preparers or Regulated Professionals. For example, the Oregon system incorporates a two-tier licensing program under which less experienced preparers are required to work under the supervision of more experienced preparers until they have sufficient experience and are able to successfully complete a more comprehensive examination than is required for new entrants.
The Section of Taxation also supports mandatory continuing education in order to maintain the ability to prepare returns going forward. To the extent that Regulated Professionals already comply with continuing professional education requirements, no additional continuing education requirements should be required. For other paid preparers, however, continuing education will help ensure that they maintain skills demonstrated through the examination process, and that they learn about changes in the tax laws and other developments that impact tax compliance requirements. In addition, paid preparers found to have prepared multiple erroneous returns might be required to complete additional continuing education as a condition of continuing to be permitted to prepare returns.
The Need for Tax Return Preparer Registration
The Internal Revenue Code presently requires all paid tax return preparers to sign the returns that they prepare, to include their identifying number on such returns, and to maintain copies of the returns prepared (or lists of the taxpayers for whom the returns were prepared). Penalties of $50 per failure may be imposed under section 6695 of the Code for paid preparers who do not comply with these requirements.
Notwithstanding the requirements presently set forth in the Code, recent reports by the National Taxpayer Advocate, the Government Accountability Office and the Treasury Department Inspector General for Tax Administration indicate that it is difficult for the Service to locate and review all returns prepared by a paid preparer when instances of willful or reckless conduct or intentional disregard of the rules and regulations are detected.
If, as the Section of Taxation recommends, minimum qualification and continuing education requirements are established for paid preparers, a uniform system of identifying paid preparers will be necessary to verify that a particular preparer meets those requirements. 4 Accordingly, the Section of Taxation supports a registration program for tax return preparers who prepare a minimum number of returns for compensation. 5 For example, registration might be required for any preparer who both prepares at least five tax returns for compensation in a calendar year and receives fees totaling at least $1,000 per annum for the preparation of tax returns. The purpose of such numerical thresholds is to ensure that registration is targeted where it is needed most - on commercial preparers. While any initial registration thresholds could be revisited over time with experience, it is important that any registration program not burden or interfere with volunteer tax assistance programs, such as VITA, or other non-commercial tax return preparation for low-income taxpayers, relatives, civic groups, etc. (even if the preparer receives a modest payment or expense reimbursement).
The Need for Enforcement of Return Preparer Rules
Despite the existence of preparer penalties in the Code, the limited data available suggests that there continues to be an unacceptably high error rate with returns prepared by paid preparers. Even though implementation of the recommendations above to impose minimum qualification requirements and establish a registration requirement for paid preparers is likely to improve the quality of returns prepared for compensation, a strong and continued enforcement program is also critical to ensuring compliance with the return preparer rules.
The Section of Taxation encourages the Service to take the following steps to improve enforcement in this area. First, additional resources should be deployed to evaluate data from returns prepared by paid preparers so that trends can be identified and addressed. In this regard, we note that enforcement of a registration requirement that would require paid preparers to include a registration number on each return they prepare would better facilitate the ability of the Service to ascertain when errors are due to oversight, negligence, or intentional wrongdoing. Over time, the Service might use data collected to develop targeted education to paid preparers regarding recurring errors that are identified.
Second, the scope of "practice before the Service" under Circular 230 should be expanded to specifically include the preparation of returns for compensation (using the same thresholds as suggested above for registration of return preparers), but only for the limited purpose of preparing returns. 6 It is ironic that Congress "clarified" in 2004 that a tax professional who renders a single written tax opinion to a taxpayer can be subject to regulation under Circular 230 for "practice before the Service" regardless of whether the tax opinion is ever disclosed to the Service, but that a tax return preparer who prepares hundreds of returns that are filed with the Service is not considered to be "practicing before the Service." Ensuring that all paid preparers are subject to Circular 230 and its ethical requirements would level the playing field and improve the quality of return preparation generally. 7
These steps can and should be implemented administratively, 8 and we encourage the Service to work promptly in this regard. We are of course aware that legislation has been introduced in Congress that would mandate changes along the lines recommended herein. 9 However, we believe that current law provides the Service with ample tools to enforce a registration program. For example, section 6695(c) of the Code authorizes the Service to impose civil penalties for the failure of a preparer to include their identifying number on each return they prepare. Before expanding the scope of that or other penalties, the Service should take steps to ensure that current law is being enforced appropriately. 10
Importantly, we do not believe that it is appropriate to create new penalties or expand existing penalty rules applicable to return preparers at this time. As has been documented in reports from the National Taxpayer Advocate, the Government Accountability Office, and the Treasury Department Inspector General for Tax Administration, the Service does not collect sufficient data in order to constructively analyze whether modifications to the penalty rules are necessary to modify behavior. 11
Concluding Observations
A well-designed and administered program that (i) establishes minimum qualifications and continuing education requirements for paid preparers, (ii) requires registration of all paid preparers, and (iii) enforces the rules imposed under the Code and Circular 230, will go a long way toward ensuring integrity in the tax system. Such efforts should lead to improvements in the quality of returns prepared for compensation, and thus should reduce the likelihood that such returns will include inadvertent or purposeful errors.
The Section of Taxation recognizes that the recommendations we make today will require dedicated resources, and we also recognize that the Service must carefully allocate its scarce resources among its many responsibilities. While certain aspects of these recommendations could be administered privately and funded with modest user fees, e.g. , registration and examinations, other aspects of these recommendations will need to be administered by the Service and its Office of Professional Responsibility, e.g. , oversight, examination and discipline. 12 We understand that budget constraints could be cited as a reason not to proceed, but that would be a mistake. It is clear that inaction (which would result in continued erroneous returns and compliance problems for the Service to clean up) is costly, while significant benefits can be obtained by acting to address these problems now (because education and prevention typically costs less than retroactive enforcement). Further, while we believe that some modest user fees might be appropriate to help offset the cost of registration and examinations, it will be important that the costs passed through to return preparers - and thus their clients - not be so high as to establish barriers to entry into the business of return preparation or to dissuade taxpayers from seeking and obtaining competent assistance to prepare their returns. 13 The American Bar Association has consistently supported adequate funding of the Service to support its missions of taxpayer service and enforcement of federal tax laws, and we will encourage Congress to provide sufficient funding so that the Service and its Office of Professional Responsibility can implement the recommendations we make today without sacrificing other important needs of tax administration.
Finally, the Section of Taxation encourages the Service to use public service announcements, its website, and other publicity to acquaint preparers and the public with the actions it implements to improve the quality of return preparation. For example, the Service could establish a system on its website through which taxpayers could verify whether their preparer is registered under this program. The Service might also use such publicity efforts to remind preparers of their obligations to sign the returns that they prepare and to include their registration numbers on those returns. And of course, the Service and its Office of Professional Responsibility should continue to use publicity of enforcement and disciplinary actions, when appropriate, to ensure that taxpayers and preparers understand that wrongful conduct will not go unpunished.
As always, the Section of Taxation appreciates the opportunity to contribute to this important discussion, and we stand ready to work with you on this important matter.
1 This is a subject on which the Section of Taxation has commented previously. See, e.g. , Comments on the National Taxpayer Advocate's Preparer Licensing Proposal (Jan. 26, 2004), available at: http://www.abanet.org/tax/pubpolicy/2004/0401stp.pdf; Testimony of Kenneth W. Gideon on behalf of the American Bar Association Section of Taxation before the Subcommittee on Oversight of the House Ways & Means Committee (Jul. 20, 2005), available at: http://www.abanet.org/tax/pubpolicy/2005/050720tes.pdf.
2 See, e.g., U.S. Government Accountability Office, Oregon's Regulatory Regime May Lead to Improved Federal Tax Return Accuracy and Provides a Possible Model for National Regulation (Aug. 2008); Treasury Inspector General for Tax Administration, Most Tax Returns Prepared by a Limited Sample of Unenrolled Preparers Contained Significant Errors (Sep. 3, 2008); National Taxpayer Advocate, 2008 Annual Report to Congress (Dec. 31, 2008); National Taxpayer Advocate, Report to Congress on Fiscal Year 2010 Objectives (Jun. 30, 2009); Treasury Inspector General for Tax Administration, Inadequate Data on Paid Preparers Impedes Effective Oversight (Jul. 14, 2009).
3 See, e.g., I.R.C. §§ 6694, 6695, 6700, 6701, 6713, 7201, 7206, and 7216.
4 Presumably the Service could mandate the use of preparer tax identification numbers ( "PTINs" ) for this purpose, as has been recommended by the National Taxpayer Advocate.
5 Such registration should not be required for professionals who are "non-signing tax return preparers" (as defined in Treas. Reg. § 301.7701-15(b)(2)), as one of the main purposes of registration and use of registration numbers is to better enable the Service to associate a "signing tax return preparer" (as defined in Treas. Reg. § 301.7701-15(b)(1)) with a particular tax return.
6 Note that section 10.7(a)(viii) of Circular 230 already permits limited practice by return preparers to represent a taxpayer before a revenue agent, customer service representative or similar officer or employee of the Service during an examination of a return that they prepared, but does not permit return preparers to otherwise practice before the Service. Beyond expanding the scope of Circular 230 to permit the regulation of return preparation, as set forth herein, we do not advocate any further expansion of the types of practitioners who may practice before the Service in compliance with Circular 230.
7 We would encourage the Service to consider whether further revisions to Circular 230 might be appropriate in connection with the recommendations described herein. For example, it may be appropriate to consider a provision setting forth "best practices" for paid return preparers, along the lines of the aspirational best practices for tax advisors set forth in section 10.33 of Circular 230.
8 Some modifications to existing regulations may be necessary to fully implement these steps. For example, Treas. Reg. § 301.7701-15(d) presently provides that "a person may be a tax return preparer without regard to educational qualifications and professional status requirements." Likewise, the definitions of who may "practice before the Service" set forth in Circular 230 would need to be revised in order to ensure that tax return preparers are subject to regulation under Circular 230 going forward.
9 We also note that H.R. 3126, which was introduced in the House of Representatives on July 8, 2009, appears to include authority for a new "Consumer Financial Protection Agency" to regulate the provision of tax planning or tax preparation services.
10 The Section of Taxation recently published a white paper supporting reform of federal civil tax penalties, and encouraging the Service to compile and publish data on the application of penalties, a copy of which is available at: http://www.abanet.org/tax/pubpolicy/2009/090421statemntciviltaxpenalties.pdf.
11 Another advantage of collecting better data on paid return preparers and errors would be that such data could inform the need for revisions in tax forms, instructions or other publications, as well as due diligence requirements imposed on preparers with respect to the earned income tax credit under section 6695(g) of the Code.
12 We believe that the present model employed for enrolled agents, under which testing and initial registration is outsourced, but where the Office of Professional Responsibility remains responsible for supervision and discipline, is an appropriate model for preparer regulation as well. Among other things, navigating the strictures of section 6103 of the Code and the inherently governmental functions of law enforcement necessarily dictate that the latter functions not be outsourced.
13 In this regard, we understand that the user fees collected by applicants to take the enrolled agent examination largely fund the costs of the contractor that administers the examinations.
Statement of Frank Degen, EA, on Behalf of the National Association of Enrolled Agents (NAE): Panel Discussion on Increased Oversight for Tax Return Preparer Community and Increased Taxpayer Compliance
July 31, 2009
Internal Revenue Service : Public forum : Tax return preparer review : Statement of Frank Degen, EA, on Behalf of the National Association of Enrolled Agents (NAE) .
STATEMENT OF FRANK DEGEN, EA On behalf of THE NATIONAL ASSOCIATION OF ENROLLED AGENTS
Panel Discussion on Increased Oversight for Tax Return Preparer Community and Increased Taxpayer Compliance
Thursday, July 30, 2009
My name is Frank Degen. I am an enrolled agent speaking on behalf of the National Association of Enrolled Agents (NAEA). NAEA represents the interests of more than 40,000 enrolled agents and is the only organization focused solely on EAs.
Today's topic is both welcome and timely. To everything there is a season and this, enrolled agents believe, is the season for providing greater oversight of tax return preparers. The facts and figures are well-told, but boil down to this:
The portion of the tax gap attributed to reporting noncompliance is $285 billion i
In the twenty-odd years since our last major tax reform, the tax code has become horrendously complex.
Roughly 60 million returns are completed by paid preparers ii
Enrolled agents have first-hand knowledge of too many Americans ill-served by charlatan preparers; preparers unwilling or unable to interpret the increasingly convoluted tax code, preparers contributing to this nation's staggering tax gap. NAEA has been pushing for vigorous oversight of all return preparers long before most in this room --save the National Taxpayer Advocate --thought it either important or possible. While we are not wedded to a legislative solution, we have urged federal tax law writers to craft fair yet strong legislative proposals iii .
Why has NAEA spent so much blood and treasure on return preparer oversight? It is certainly not to put competitors out of business. Candidly, between the Code's increasing complexity and the Service's stepped up compliance efforts, there is more than enough business to go around. We are driven by the fundamental truth that Americans who pay a "professional" ought to get a professional return. We believe to meet that end federal policymakers should provide national standards for all paid return preparers.
To be blunt, it is the Wild West out there right now, and we need to bring the sheriff back to town. EAs believe that in order to be successful, any return preparer program must significantly increase taxpayer access to competent and ethical tax preparation services .
More practically, we suggest three pillars for any new oversight program:
1. Competency : Taxpayers would have a reasonable expectation of competency if preparers are subject to initial testing, continuing education, background checks, and strong ethical standards. This is not a new idea; both Representative Becerra and Senator Bingaman have introduced bills in prior Congresses embracing this concept. The only basis for grandfathering (if any) of unenrolled preparers is passage of a competency test that the Treasury Department deemed comparable. The absence of an initial competency test could place taxpayers in a worse position than currently exists, as taxpayers will assume a preparer holding a federal license has at least demonstrated minimal competence iv
2. Centralization : Any program should build on the existing regulatory framework and consolidate administration and enforcement under the Office of Professional Responsibility. Why construct a parallel regulatory framework and enforcement entity for different groups of paid preparers? Centralization would create a variety of benefits: one ethics code; coordinated exams that would allow for advancement within the profession; and standardized continuing education requirements all administered under the already existing system.
We strongly oppose the establishment of a separate IRS division to provide oversight to some but not all preparers or any type of quasi-governmental entity to oversee the newly regulated. Consolidation within the agency should ensure uniformity of standards and enforcement for all return preparers and necessary privacy for taxpayer information.
3. Adequate resources : The most pragmatic element for any program is adequate resources for administration, promotion and enforcement v . It is not unreasonable or unusual for professionals to pay for their licenses --attorneys pay for their licenses, certified public accountants pay for theirs, and EAs pay for theirs, too. OPR should retain all registration fees for administration of the program, including policing all practitioners and preparers under their jurisdiction.
Given the newness of the program, IRS must also be charged with raising awareness amongst the general public. Taxpayers must understand the importance of paying only licensed individuals for tax preparation as well as the requirement for paid preparers to sign returns. vi
NAEA commends Commissioner Shulman for giving this issue such prominence. If we succeed in providing strong, common sense national return preparer oversight, we will protect taxpayers, elevate the profession, and level the playing field for those currently subject to Circular 230. These are good goals. These are laudable goals. These are achievable goals. Let us work together towards them.
The National Association of Enrolled Agents (NAEA) is the professional society representing enrolled agents (EAs), which number some 46,000 nationwide. Its 12,000+ members are licensed by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service (IRS), including examination, collection and appeals functions.
While the enrolled agent license was created in 1884 and has a long and storied past, today's EAs are the only tax professionals tested by IRS on their knowledge of tax law and regulations. They provide tax preparation, representation, tax planning and other financial services to millions of individual and business taxpayers. EAs adhere to a code of ethics and professional conduct and are required by IRS to take continuing professional education. Like attorneys and certified public accountants, enrolled agents are governed by Treasury Circular 230 in their practice before IRS.
i Update on Reducing the Federal Tax Gap and Improving Voluntary Compliance , United States Department of Treasury, July 8, 2009
ii IRS Statistics of Income 2008 Filing Season Statistics (Cumulative through the weeks ending Dec. 28, 2007 and Dec. 31, 2008); IRS SOI 2009 Filing Season Statistics (Cumulative through the week ending April 27, 2009)[PY = processing year]
_____________________________________________________________________________________
Individual Income Tax Returns PY 2007 PY 2008 PY 2009
_____________________________________________________________________________________
Total Receipts 140,188,000 156,297,000 131,543,000
_____________________________________________________________________________________
Total Processed 140,023,000 156,053,000 117,014,000
_____________________________________________________________________________________
E-filing Receipts:
_____________________________________________________________________________________
TOTAL 79,979,000 89,886,000 90,639,000
_____________________________________________________________________________________
Tax Professionals 57,420,000 62,959,000 59,439,000
_____________________________________________________________________________________
Self-prepared 22,559,000 26,927,000 31,200,000
_____________________________________________________________________________________
iii During Congressional testimony, I offered up the oft-quoted: "if you need to go to a licensed barber to get your haircut..." This statement is no less true today than it was four years ago.
iv As the Treasury Inspector General for Tax Administration has recently found in one of its studies of state regulatory efforts, a well constructed program, such as Oregon, can result in higher compliance rates, but a weak program without an initial competency exam can actually result in lower compliance than the national average.
v Given the current budget environment, dollars should come from paid preparers, not from the fisc.
vi ...and may require the taxpayer to make an attestation that a paid preparer was or was not used to prepare the taxpayer's return.
Statement of James H. Nolen, on Behalf of the National Society of Accountants, at the IRS Public Forum on Tax Return Preparer Review
July 31, 2009
Internal Revenue Service : Public forum : Tax return preparer review : Statement of James H. Nolen, on Behalf of the National Society of Accountants .
IRS Public Forum on Tax Return Preparer Review
Statement of James H. Nolen, on behalf of the National Society of Accountants
July 30, 2009
Thank you for this opportunity to participate in this Forum and share our views regarding the possible regulation of federal income tax preparers. My name is James H. Nolen. I am the President of the National Society of Accountants ("NSA"). I am the owner of Nolen's Accounting and Tax Service in Oklahoma City and have provided accounting and tax
I am here today in my capacity as President of the National Society of Accountants, a voluntary association of certified public accountants, enrolled agents, licensed public accountants, other licensees of state Boards of Accountancy, tax practitioners who are licensed by state agencies, and accountants and tax practitioners who hold credentials from a nationally recognized credentialing body. Many of these members are not currently subject to direct regulation by the Internal Revenue Service. NSA and its affiliated state organizations represent approximately 30,000 practitioners who provide accounting, advisory and tax related services to more than 19 million individuals and small businesses. In short, NSA represents accountants and tax professionals who serve Main Street rather than Wall Street .
The members of NSA, as well as members of other professional societies have long recognized that, if you are going to hold yourself out as a professional in the tax field, it takes substantial preparation. Given that a client's financial well being is sometimes at stake, it is not unfair to have minimum standards or to require a test. In fact, NSA's Bylaw's require a professional credential as a condition of continuing membership.
Registration of Tax Preparers
Because of a tax preparer's intimate and detailed knowledge of a client's financial situation, and the ability to impact that financial situation through tax return preparation and filing, NSA has long supported registration of tax preparers. Registration would provide a means of allowing current and potential clients to know that the preparer meets whatever minimum standards are set to be qualified as a professional preparer.
Testing
One of the minimum standards should be successfully passing a qualifying examination to test basic knowledge any paid preparer should know. If a barber or a beautician needs to pass a competency examination, then a tax preparer should as well, given that a poor effort by the preparer can have substantially worse effects on the client than a bad haircut.
There are a number of practitioners, however, who have earned a waiver of the examination requirement. These are tax practitioners who have already demonstrated their competence by passing a valid examination. For example, NSA recognized in the early 1970s that some preparers had no test available to them if they did not want to become an enrolled agent, CPA or attorney. As a result, NSA formed the Accreditation Council for Accountancy and Taxation to offer tax credentials. ACAT's examinations are administered by a subsidiary of the National Association of Boards of Accountancy, the same group that administers the CPA examination. ACAT's examinations are psychometrically validated and are certified by the National Organization of Credentialing Agencies. I am sure that other organizations may have developed valid examinations as well. We believe it appropriate that an examination waiver of the examination requirement be provided for to any practitioner that passes or has passed an ACAT examination. Of course, the IRS should have the right to audit these examinations to ensure they meet whatever objective standards are set.
Similarly, examination waivers should be granted any individual holding a license from a state Board of Accountancy. These practitioners have likewise demonstrated a level of competence that is based on a long-established regulatory standard that has education, experience and examination as required components. Every state accountancy regulatory scheme requires continuing professional education as a condition for license renewal.
The states of California and Oregon already license tax preparers in their respective jurisdictions. The licensing qualifications differ slightly in each state, but both require a substantial educational element, including state and federal taxation and ethical conduct, as a prerequisite to granting a license. In both states, continuing professional education is a requirement for license renewals. California currently licenses approximately 36,000 tax preparers and Oregon licenses approximately 8,000 preparers under their respective programs. These states already impose adequate and efficient licensing requirements on their tax and accounting professionals. We do not believe additional federal testing requirements should be imposed on these individuals or similarly situated individuals in other states.
Finally, the Office of Professional Responsibility of the IRS has extended Circular 230 privileges to public accountants in a number of states. These licensed public accountants, like their CPA counterparts, are subject to regulation and supervision by state Boards of Accountancy and must meet continuing education, professional standards and other requirements in order to maintain their practice rights. We firmly believe that if the Internal Revenue Service has already recognized the competence and integrity of these tax and accounting professionals in these states, no additional federal requirements should be necessary. Any individual granted an examination waiver would still be required to register, pay the appropriate fees and meet any other non-testing requirements.
Continuing Education
We support a requirement for continuing education to ensure continuing competence with respect to basic tax knowledge, especially given our ever changing tax code. All of the education recognized by NSA for CPE purposes must meet the standards established by NASBA. This is the same standard recognized for purposes of maintaining the CPA license and ensures the education taken is of sufficient professional quality. We recommend that any education required for tax preparers should also meet minimum professional standards.
Implementation
NSA believes that an orderly, phased implementation of registration and/or testing over a two or three year period is mandatory. A shorter time period is likely to unnecessarily disrupt the filing process. Further, as part of this implementation, the tax preparer who initially filed a return should be allowed to continue to participate in the disposition of that return until it is accepted and closed by the IRS, even if that is a multi-year process, and even if any new tax preparer rules are made final during the tax period.
Administration
We support the establishment of an "administrative entity" to oversee tax preparers and ensure that any fees paid by preparers are used for regulation and to educate consumers. NSA has been dismayed that a number of states are considering imposing fees on tax preparers merely as a means of enhancing state budgets. This does nothing to address competence and does nothing to educate consumers about the financial perils or possible criminal penalties they may face if they engage the services on unscrupulous preparers.
Enforcement and Consumer Education
Absent a robust consumer education program we are concerned that those individuals who do not comply with current requirements will not comply with any new requirements, either. A key is to bring those individuals into the tax preparer system and the best way to do so is to ensure that they suffer significant financial harm if they willingly flout the law. . . Taxpayers must also be educated, by a number of means, to understand that a paid preparer must sign a return. It should also be possible to work with software developers to disable software if it is used more than a set number of returns. If we fail to bring these preparers into the system, we will merely be trying to increase compliance by the compliant and this effort will have missed its mark.
A minimum competency exam at the front-end along with registration, required continuing education and significant penalties for non-registrants coupled with aggressive enforcement by the Service is the pro-active path and the path NSA advocates.
Labels: licensing tax return preparers
posted by Return Preparer Tax Law @ Friday, July 31, 2009
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