Tax stuff I think is interesting. It is either copied from my primary blog on forbes.com http://www.forbes.com/sites/peterjreilly/ or stuff that I did not put there because being on forbes is a good gig and they have, you know, standards. Also some guest posts.
Saturday, July 26, 2014
Wandering Tax Pro Meanders to Forbes
Originally Published on forbes.com on August 11th,2011
When I started tax blogging in earnest, I was very pleased by the welcome I received from one of the long established tax bloggers – Robert Flach – The Wandering Tax Pro. Bob is a little critical of my professional designation. He also does not believe in using “expensive and unreliable” software to prepare returns. He relishes the long hours of tax season, since it allows him to take it a little easy the rest of the year. Tax blogger Joe Kristan, like me a CPA, describes Bob’s preferred tax season as a six week death march. I greatly appreciate Bob doing a guest post for me. Here he is sharing his thoughts on regulation of tax preparers.
REGULATING TAX RETURN PREPARERS
Were you aware of a significant change in the rules for filing federal income tax returns that took place this past tax filing season?
Beginning with the filing of 2010 income tax returns only those individuals who register with the Internal Revenue Service and are issued a valid PTIN (Preparer Tax Identification Number) are allowed to prepare federal income tax returns for a fee.
All paid tax return preparers must sign the tax returns they prepare, which is nothing new, and to enter their PTIN on the return.
Previously any Tom, Dick or Harriet could hang out a shingle in most states as a “tax professional” and charge a fee for preparing 1040s, regardless of knowledge, training or experience. A person with no tax education or experience could buy a tax preparation software package and turn “pro”.
Over years I have seen the sign “Tax Returns Prepared Here” in the strangest places. One morning a few years back I saw such a sign in the window of a barber. You could apparently get a haircut and a manicure and have your 1040 prepared all in one sitting!
And recently all kinds of unrelated businesses, armed with only a tax preparation software package, offered tax preparation services in order to profit from selling usurious “Refund Anticipation Loans”.
Newly registered tax professionals will eventually be required to pass an initial competency exam on 1040 issues and earn a minimum of 15 hours ofcontinuing professional education (CPE) in federal taxation topics per year to maintain their PTIN. A total of 3 of the 15 hours must be in “tax updates” and 2 must be in “ethics”.
All individuals who wish to prepare federal income tax returns for a fee must register with the IRS and receive a PTIN. This includes current EnrolledAgents (EAs), Certified Public Accountants (CPAs), and attorneys as well as the previously “unenrolled”. However EAs, CPAs and attorneys will be exempt from taking the initial competency exam and from the annual 15 hours of CPE in federal taxation.
Previously “unenrolled” preparers (those preparing tax returns who are not an EA, CPA or attorney), like myself, who must pass the test and meet the CPE requirements will be given the credential of “Registered Tax Return Preparer” (RTRP). EAs, CPAs and attorneys will not be credentialed as a “RTRP”. They will simply be EAs, CPAs or attorneys.
Once the new regulation regime has been completely phased-in, the IRS may charge taxpayers who pay an unregistered person to prepare their return – one who does not have a valid PTIN and does not sign the return – a penalty. The IRS recently announced that later this year it will be sending letters to taxpayers who filed “self-prepared” returns for 2010, but who appear to have had assistance. The letter will inform taxpayers how to file a complaint against preparers who failed to sign returns and explain how to choose legitimate tax preparers.
The IRS, and other proponents of regulation, hopes that these new procedures will reduce tax fraud and help take a bite out of the humongous Tax Gap. Will this happen? Of course not! Regulation does not automatically reduce fraud. Regulation of CPAs did not prevent the Enron mess, regulation of medical professionals does not prevent Medicare and insurance fraud, and so on.
Cheating taxpayers will still find accommodating unethical and downright crooked preparers (and vice versa). Most of these preparers already do not sign the returns they prepare – so they will remain “underground”. And those with no real knowledge of tax law who charge for returns produced by merely entering tax information into a software program will continue to produce “self-prepared” returns for their clientele.
A better way to reduce fraud and the Tax Gap is to simplify the Tax Code. That is a subject for another post.
Should tax preparers be regulated?
As one of my fellow tax bloggers pointed out –“Electricians are licensed. So are plumbers. Even my hairdresser has to get an official piece of paper from the State of Texas before she can cut hair for a living.” So why not tax preparers? Actually the IRS initial investigation of the issue was prompted by a similar comment from a member of one of the Service’s “civilian” oversight committees.
My answer is yes. I have been a vocal supporter of the licensure and registration of tax return preparers from the beginning. Why?
(1) The IRS has a legitimate need for a central registry of all those who prepare tax returns for a fee.
(2) The new “Registered Tax Return Preparer” designation awarded to those who pass the test and take mandatory CPE credits will provide the public with an indication of who, besides an Enrolled Agent (who already has taken a more extensive competency test and has similar CPE requirements), is at least minimally competent and remains current in 1040 preparation. Currently taxpayers have know way of knowing if a person who says he/she knows how to prepare 1040s actually knows how to prepare 1040s.
(3) The RTRP designation would put the competent, experienced, and ethical previously “unenrolled” preparer, again like myself, on an equal footing with the CPA in the eyes of the general public. It would dispel the unfounded “urban tax myth” that CPAs are 1040 experts. CPAs would no longer erroneously “own” the tax preparation business, as the AICPA told a member it believed they did. Just because a person has the initials CPA after his/her name does not, by itself, mean that he/she knows his/her arse from a hole in the ground when it comes to preparing individual income tax returns.
While I support the regulation of tax preparers, I do not support all of the current rules. I believe that there should be some kind of “grandfathering” exemption from the competency test for long-time tax preparers, like myself, based on years of continued practice without incident and minimum CPE credits in taxation taken during a look-back period. I also very strongly believe that attorneys and CPAs should not be exempt from the competency exam and 15 hours of annual CPE in federal taxation.
Exempting CPAs from obtaining the RTRP designation via testing and required CPE actually does a disservice to CPAs and to the public. There are many CPAs who are indeed 1040 experts by way of their individual education, training and experience. These individuals should be allowed the opportunity to have their competence and currency in 1040 preparation verified and acknowledged.
I also am against forcing registered preparers sitting through two hours of ethics each and every year. A one hour update every other year is sufficient. If I am not “ethical” by now, sitting through a 2 hour sermon every year ain’t going to make me so.
So from now on be sure that the person you hire to prepare your tax return is registered with the IRS and has a PTIN.
As you see Bob can be a little tough on us CPA’s. In our defense, we have a 40 hour CPE requirement and believe me it is much more pleasant to take those hours in tax if that is your focus than it is to take GAAP . Florida where I also hold a license actually has a minimum number of hours in accounting and auditing that must be taken.