Tax Lawyer's Blog

With apologies to President Gerald Ford: My fellow tax practitioners, our long national nightmare is over.

Finally, the IRS has spoken on the issue of tax preparer regulation. Yesterday, it issued a 57 page document entitled Return Preparer Review in which it makes recommendations regarding the regulation and oversight of tax preparers.

Here’s the IRS’s sound (and rather obvious, I think) reasoning for expanding tax preparer oversight to previously unlicensed tax preparers (emphasis added):

Currently any person may prepare a federal tax return for any other person for a fee. Due to the lack of registration and inconsistent reporting, the number of tax return preparers is not known. The IRS estimates that there are between 900,000 and 1.2 million tax preparers currently.

Although, some tax return preparers (e.g., attorneys and certified public accountants) are licensed by their states and other are enrolled to practice by the IRS, many tax return preparers do not pass any competency requirements before they prepare a federal tax return. This last category of tax preparers is not required to have any minimum education, knowledge, training or skill before they prepare a tax return for a fee.

Kudos, Commissioner Shulman. You have wisely recognized that currently unlicensed tax preparers have not had to prove to anyone at anytime that they possess even the most rudimentary skills (i.e. that they can read and write or that they can add two single digit numbers correctly) necessary to accurately interpret even the simplest of federal tax laws and prepare even the simplest of federal tax returns.

IR 2010-1 summarizes the IRS’s recommendations as follows (sub-headings added):

Preparer Registration and Issuance of Preparer Tax Identification Number

Requiring all paid tax return preparers who must sign a federal tax return to register with the IRS and obtain a preparer tax identification number (PTIN). These preparers will be subject to a limited tax compliance check to ensure they have filed federal personal, employment and business tax returns and that the tax due on those returns has been paid.

Competency Tests for Non-Attorney, CPA and Enrolled Agent Preparers

Requiring competency tests for all paid tax return preparers except attorneys, certified public accountants (CPAs) and enrolled agents who are active and in good standing with their respective licensing agencies.

Continuing Professional Education for Non-Attorney, CPA and Enrolled Agent Preparers

Requiring ongoing continuing professional education for all paid tax return preparers except attorneys, CPAs, enrolled agents and others who are already subject to continuing education requirements.

Application of Circular 230 to Non-Attorney, CPA and Enrolled Agent preparers

Extending the ethical rules found in Treasury Department Circular 230 — which currently only apply to attorneys, CPAs and enrolled agents who practice before the IRS — to all paid preparers. This expansion would allow the IRS to suspend or otherwise discipline tax return preparers who engage in unethical or disreputable conduct. 

My Observations:

I agree with all of the above recommendations and would reiterate what I said in a blog post I wrote last October titled Tax Preparer Regulation and the Privilege:

We are obviously going to continue to allow non-lawyers to practice tax law, therefore, we should try to equalize the benefits as well as the obligations of non-lawyer and lawyer participation. I don’t know what form the new IRS regulatory scheme will ultimately take, but I recommend that, in addition to omitting the disclaimer from Circular 230, it do the following:

• Provide a Federal  Attorney/Client Privilege - If you are going to allow non-lawyers to practice law, you should allow their clients the same privilege tax lawyers’ clients have with respect to their communications with their attorneys.
• Include a list of allowed services – A detailed and comprehensive list of services that licensed, non-lawyer, practitioners are allow to perform.
• Require Ethics education - Lawyers and CPAs are required to obtain a certain number of hours in ethics education every year. For example Florida lawyers must take 5 hours of ethics instruction. Licensed tax practitioners should have a similar ethics education requirement.
• Require a  malpractice insurance disclosure – Regulated taxpayers should be encouraged to obtain malpractice insurance and should be required tell their clients and potential clients if they do not carry it.

Related Posts:

• Unenrolled Tax Preparers Not so Good, TIGTA Study Reveals
• IRS to License and Regulate Tax Preparers
• Taxpayer Complaints Against CPA’s Decline
• Unenrolled Preparers Strictly Limited, Eleventh Circuit Rules
• Study Finds that CPA Prepared Returns Result in Fewer Errors than Returns Prepared by Non-CPAs
• Tax Preparer Regulation: A Response to Joe Kristan

Bookmark & Share: