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IRS Taxpayer Regulation Program Misses Its Target

Joanne S. Barry

According to the IRS, 60% of paid preparers filing tax returns each year do so with little or no oversight by the federal government. For an agency that collects more than $2.9 trillion per year, that's a lot of good faith with little assurance. On its face, it might seem to make sense to require anyone who charges a fee to prepare more than a few tax returns every year to take competency testing and continuing education classes and be able to prove that they've done so. But taking a deeper dive into the IRS's program to do just that reveals several flaws.

The IRS's Initiative

When the IRS began rolling out the Tax Return Preparer Initiative in 2010, its approach received mixed reviews by the professional community, even though CPAs, attorneys, and enrolled agents are exempt from the program. One primary objection was that the agency did not have the statutory authority to implement the program. The courts agreed: on January 18, 2014, the U.S. District Court for the District of Columbia found that the agency had no statutory authority to enforce regulatory requirements for competency testing and continuing education. That decision was upheld this past February, when Loving v. IRS made its way to a federal appeals court.

The IRS is committed to this program, so much so that instead of working with the CPA community to implement a registration program the right way, it is about to take another misstep—making the program voluntary. While no one would be required to earn continuing education courses and take a test, they can still earn the certificate if they want to be included in a database of federally registered tax preparers.

The AICPA has come out strongly against the agency taking this route; in a June 24 letter, it implored IRS Commissioner John Koskinen to hold a public comment period on the program. Furthermore, the AICPA identified in the letter “significant legal problems” that would confuse the public, frustrate the IRS's goals, and lead to lawsuits if implemented in its current form.

Two days after the AICPA issued its letter, Koskinen said in a statement posted on the IRS website that the agency will solicit feedback on the voluntary proposal, although it has already announced the program and the details of it on its website. In addition, the IRS has already stated that the program will be in effect for the 2015 filing season.

An Unintended Consequence

The IRS's initiative sounds like one that would be easy to support: ensure that all preparers of individual income tax returns have a minimum level of competency and adhere to professional standards, with an overarching objective of better service to taxpayers and increased compliance. But any competency program that is badly implemented—without the profession's feedback—can only lead to more confusion for the public. And any unscrupulous tax preparers will still commit tax fraud, blissfully unaware that any mandatory or voluntary program even exists.

The IRS has not yet given up on its mandatory registration program. The 2015 federal budget proposal includes a provision to authorize the IRS to regulate all tax return preparers. But the public will not benefit from a brass-plated program. The unintended consequence will be a loss of distinction between the gold-standard CPA profession and the unlicensed tax preparer.

Joanne S. Barry. CAE. Publisher, The CPA Journal, Executive Director & CEO, NYSSCPA, jbarry@nysscpa.org.

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