Registered Tax Return Preparer Rules Overturned

[taxref]

For many of us on this forum, the big news today will be the court decision placing a permanent injunction on the IRS regrading the RTRP test, required CPE, and the registration fee.  It is unknown at this point if the IRS will appeal the ruling.

The judge's decision seems to have been based on 2 primary issues.  The first issue was whether the IRS had the authority to make those regulations in the first place, absent a law being passed by Congress.  The second factor was that, at least according to the judge, many small tax return preparers would go out of business due to the regulations.  

As a small preparer myself, I didn't think the requirements were onerous at all.  I was not required to take the test until the end of 2013, as I had my PTIN for a number of years.  I did self-study CPE, which was both inexpensive and not difficult for me.  I think most of those who would have trouble with the CPE would be those who didn't keep up with changes on their own.

It will be interesting to see what happens after this point.
 

[❤ mollymouser ❤]

Indeed. As a consumer, I was rather looking forward to a greater sense of security that any paid tax preparer I may encounter in the future had established recent minimal qualifications.

Then again, a CPA does our taxes at present, and I am confident HE knows his stuff

[grits]

I am glad that the judge overturned it. I am sick of government agencies passing their own laws.

[mwcpa]

Congress needs to act here, but Congress cannot agree on much, so it may be pipe dream (free market advocates will be cheering, even though unknowing consumer will be placed in harm’s way). Doctors have accreditations, taxi drivers have licenses (in many town and cities), etc, but now we can go back to the 5 minute training class (or worse) preparers who really damage the profession with less protection for the consumer.

With CPAs, EAs, attorneys, enrolled actuaries, and those now formerly registered with PTINs the consumer has a license number of some sort and those preparer is subject to regulatory action, hang a shingle with the old turbo tax "self prepared" days are coming back I guess (no regulation and again the consumer signs the "under penalties of perjury statement").

Well, at least states like NY have state mandated requirements for "preparers" to be registered with the tax department. In addition, many locals have local ordinances for unlicensed preparers (NYC has the DCA).

Sad day for reputable tax professionals, the ones who actual get continual training, work hard for their accreditations, etc. This move, unless Congress acts, will put consumers in harms way.

[Deleted]

I have a liberatarian leaning, but in this case I side with the IRS. I worked for Liberty Tax Service when I first started about 8 years ago; after seeing what was going on there (incompetence, ignorance and fraud), I quit and went to work for a CPA. I took the RTRP test a month ago and passed; and it wasn't that hard. These dubious "mom and pop" tax prep offices are helping undeserving filers RIP-OFF law abiding, tax paying American, and it's got to stop. I hope the IRS responds by auditing the offices of these tax preparers who don't have credentials at the first sign of ANY mistake. I hope that tax offices that have preparers who don't take a basic competency test (RTRP exam) are automatically scrutinized.

[TheOtherMe]

I am certainly hoping the Service appeals this and the rules continue.

Many people here know I am a retired IRS Agent. That means I audited tax returns. I was also involved in "preparer projects" of known unscrupulous preparers. I like the idea of a competency exam. There are too many mom and pop preparers who crop up during tax season and then disappear. If problems come up down the road, they can't be found.

I have heard Liberty doesn't train nor test their preparers. Is that true?

I did work one tax season for H & R Block. They did train us and we had to pass the final exam to be interviewed. Block also requires CPE hours of returning preparers. Please do not take this as an endorsement of Block. I left for a reason--I did not like the emphasis put on selling the instant refunds. I don't know for sure, but I think they can't do it the way it was done when I was there in about 2003 or 2004.

[Rocky Mtn Saver]

I am picking up some hours at Jackson Hewitt this season, and JH does also require training and passing some exams before preparing. The people I've been working with and for in this local office seems genuinely interesting in following the rules and are diligent. I've been happy with that part so far. I'm not thrilled with some of the 'financial products' sold, but the office owner doesn't put a big emphasis on preparers to 'sell' the products to customers. I don't know if they require CPE for returning preparers, though, as this is my first time.

ETA:  I was shocked by the news of the ruling on Saturday when I read it.  I didn't even realize it was being challenged.  I've been preparing to take the RTRP exam this summer, so I will probably continue to do what I am doing for now.  It's good experience either way. 

[ieatcookies]

I think the current requirements for the IRS registered tax preparer accreditation doesn't seem all that bad.  The CPA requirements in CA require I do 80 hours of CPE every two years.  I'd hope any tax preparer preparing taxes for the average consumer for pay should have some degree of proficiency.  But then again, I just got this type of tax return handed to me by a CTEC (California Tax Education Council - non CPA,EA, or lawyer) preparer:

A young man unmarried in his twenties is self employed.  He made about $5K in Sch C income, and about $3K in long term capital gains.  He had no other income.  He lives with his mom, who is married to a non resident alien outside the US. Mom owns the house they're living in. She received a 1098 of about $12K in mortgage interest and prop tax of about $10K/yr.  The kid does not financially support the mom - money is wired from overseas every month from the dad. Based on the docs they brought in, mom has enough going on that she'd need to file her own return.

And on this 1040, the CTEC showed the kid as head of household with mom as a dependent .  Then on a Schedule A, the CTEC throws all of mom's itemized deductions on it.  Now the IRS is scheduling an exam, and we just received a notice from the FTB asking why mom didn't file a return. 

All for the low low price of $100.       

[Rocky Mtn Saver]

I didn't think the RTRP requirements were too bad either.  However, I do understand the argument that the IRS is not actually empowered to make such regulations.  As I understand it, the IRS was relying on an 1884 law that allows it to regulate people presenting cases before it.  However, simply preparing a tax return cannot accurately be called "presenting a case before the IRS."  I'd imagine that there are other governmental bodies who do have the authority to regulate this industry, or to give the IRS that authority. 

And FWIW, from what I've seen so far, I do find the OR and CA regulations to be onerous on small-time preparers.  For those like me who are only interested in doing taxes part-time, those costs and rules may not make it an economically viable choice. 

[mwcpa]

"All for the low low price of $100." 

They got what they paid for....


"I'd imagine that there are other governmental bodies who do have the authority to regulate this industry, or to give the IRS that authority.  "

Many states have as it relates to preparing state filings... so we have 50 sets of rules now.... Congress needs to act....

The reason the IRS and many states set out rules was to help ensure that those who are registered have some basic level of competency, just like many locales force "contractors" to be licensed, or "electricians," etc.  To get the license there is a basic competency required.... before the IRS came up with these rules anyone could prepare for a fee someone elses tax return with absolutely no knowledge and access to the box.....

[Rocky Mtn Saver]

I don't have a problem with a minimum competency exam or a reasonable amount of CE for preparers (I was okay with 15 for RTRP's), but I do think that OR's regulations go a bit overboard.  Tax preparation is something that many people will be doing part-time for only 4 months of the year, and requiring too many CE hours and/or too high licensing costs can negate a LOT of that potential income for many part-time preparers.  In my opinion, it's different than licensing a field that usually done to provide income full-time year-round.  And when I was looking into the matter, the IRS requirements didn't satisfy the OR licensing requirements, making the situation more onerous for small practictioners in that particular state.  That's good for the chain preparers like H&R Block and software makers like Intuit (which explains why they both supported the new regulations), but could be bad for small businesses.  Depending on how it's handled. 

[TheOtherMe]

From what I have read, IRS is still seeking advice from the Justice Department.  My guess is they will attempt some way of testing preparers. I really don't have a problem with that.  

I've heard that CA regulations on preparers are quite strict and onerous.

[taxref]

Rather comically, yesterday I received a telemarketer call from a company selling RTRP test preparation material.  The sales rep didn't seem very surprised when I told him of the injunction. 

It seems there are some unknowledgeable and/or unscrupulous people in the RTRP business as well.

[Rocky Mtn Saver]

I understand that some of the 50,000 people who have taken the exam so far will be seeking a refund of the testing fee.  I wonder if we can seek refund of the PTIN fees we've paid too? 

ETA:  The site I have been using for RTRP practice exams and study guides is still selling all their RTRP materials with no mention of anything changing.  The price is lower, though. 

[TheOtherMe]

From what I've read, this is totally separate from the PTIN fees.  Unless you want to use your SSN, you need a PTIN to be a paid preparer.

[taxref]

To follow up on this subject, the IRS has filed an appeal.  The IRS is also asking for a temporary injunction against the first judge's permanant injunction.  If the temporary injunction is approved, the RTRP rules (regarding registration, PTIN, CPE, & test) would go back into effect immediately. 

The primary arguement behind the service's request for an injunction is that harm will be done to the public if the RTPT rules cannot be enforced.  The IRS cited huge dollar volumes of tax fraud commited by unregistered preparers, mostly in regards to the EITC.  Other fake refund schemes were also mentioned.   

The IRS has also responded to the concern that many small tax return preparers will be driven out of business by the rules.  The IRS contends that all of the original plaintiffs who made that arguement had complied with the RTPT rules, and that all intended to prepare returns regardless of how the judge ruled. 

It doesn't seem as though litigation involving this issue will be settled any time soon, at least on a permanant basis.

[Deleted]

www.irs.gov/for-Tax-Pros

On Friday, Feb. 1, the court modified its order to clarify that the order does not affect the requirement for all paid tax return preparers to obtain a preparer tax identification number (PTIN). Consistent with this modification, the IRS has reopened the online PTIN system.

The IRS continues to have confidence in the scope of its authority to administer this program and is working with the Department of Justice to address all options, including a planned appeal.

[rangerj]

The bare minimum requirement for a paid return preparer should be the Enrolled Agent requirements. If you follow the courts logic there would be no reason for a license requiremnent to do open heart surgoery. I want to compete in that market and the license and education requirements are keeping me out of it. Whaa. The court missed the point that Enrolled Agents, CPAs, and attorneys ARE required to meet education requirements, are tested, and are required to get CPE, as well as registration requirements. In most states auto mechanics are required to be licensed, as well as hair dressers, and are required to meet education requirements, AND CPE requirements. This judge blew it. The next time I take a flight I going to cite this case and tell the FAA and the pilot to get out of my way because I'm flying the airplane. To heck with the FEDERAL license and education requirements. This case will be overturned, I hope. This is a PROFESSION and those who want in have to pay their dues. There is no room for "wanabees".

[Rocky Mtn Saver]

It's also a profession that most people involved will only be doing at most 4 months of the year, as opposed to the full-time income potential for the other professions you cited. I think that the reduced CPE requirements were appropriate for a limited practitioner of the profession with limited rights of practice.

[Rocky Mtn Saver]

Besides, I think the argument for the overturning wasn't really on whether or not the rules were appropriate, but rather on whether or not the IRS even had the authority to create such rules. The judge ruled that it hadn't been given the authority and was basing its actions on a 19th century ruling that was not appropriate to this case. They need to get the authority to create the oversight, and then I think that the RTRP rules would be very appropriate as they were written.

[Formerly SK]

Jan 23, 2013 13:50:35 GMT -5 Rocky Mtn Saver said:

I don't have a problem with a minimum competency exam or a reasonable amount of CE for preparers (I was okay with 15 for RTRP's), but I do think that OR's regulations go a bit overboard.  Tax preparation is something that many people will be doing part-time for only 4 months of the year, and requiring too many CE hours and/or too high licensing costs can negate a LOT of that potential income for many part-time preparers.  In my opinion, it's different than licensing a field that usually done to provide income full-time year-round.  And when I was looking into the matter, the IRS requirements didn't satisfy the OR licensing requirements, making the situation more onerous for small practictioners in that particular state.  That's good for the chain preparers like H&R Block and software makers like Intuit (which explains why they both supported the new regulations), but could be bad for small businesses.  Depending on how it's handled. 

I was a PT self-employed preparer in OR many moons ago.  I did 10-15 returns for friends/family.  I stopped because the CPE requirements would have cost almost as much as the profit I made from the returns.  Not to mention paying for a week's worth of daycare to watch my kids while I attended the classes (I did the returns during their naps or at night).  I get the goal - we want qualified people doing returns.  But honestly that comes from preparers with integrity as much as education.  I worked at H&R Block that season and because it was OR we had pretty stiff training/testing.  There were preparers who cared and made sure they did the returns correctly, and preparers who liked to be popular so they manipulated the data to get the most refund.  Unless the client is audited, you don't know which is which.  I don't think the issue is education.  Designing a system so preparers lose their license/job after a certain number of errors would solve a lot of problems.

[Rocky Mtn Saver]

That's my concern if I move back to Oregon.

I agree that education probably isn't the biggest issue, but ethicalness (is that a word?) is. Anyone can look up in Pub 17 how to handle something, and the software these days really does much of the work for you. The key is to build a culture of doing things correctly because we care and real penalties for not doing so.

[rangerj]

Whether a PAID tax return preparer does one return or 1 million tax return he or she should have to meet minimum requirements of education and standards, such as a certification, that is testing. The education can be a degree such as an accounting degree, or on the job training like a journyman. Anything less than the requirement for an Enrolled Agent and the preparer should only be allowed to prepare 1040 A, 1040EZ, and 1040 with itemized deductions, but nothing with any international issues, business issues including rental property, or flow through return issues. If a preparer does not want to be PREPARED, THAT IS PROFESSIONAL, then he or she shouuld not be in the BUSINESS.

[Rocky Mtn Saver]

And how much should it cost?  At some point, it becomes financially prohibitive on what is largely a PART-TIME business model.  The EA rules require more CE credits and higher testing costs than the proposed RTRP rules.  But most RTRP folks will only be doing a smaller amount of returns and only for a few months.  So at what point do higher costs begin to discourage competition and reduce small business' accessibility to the profession? As SK mentions above, the Oregon rules are expensive enough that it can drive a small business out of the profession.  If a person is the best tax person ever, but he has to pay $500 annually for CE credits and will only make $800 preparing a few returns, what incentive is there for him to continue to do so?  I'm not against education, but I do realize that there must be a balance to the ongoing costs for small preparers.  Unless you just want H&R Block to be the only game in town. 

[Deleted]

Feb 5, 2013 12:33:43 GMT -5 rangerj said:

The bare minimum requirement for a paid return preparer should be the Enrolled Agent requirements. If you follow the courts logic there would be no reason for a license requiremnent to do open heart surgoery. I want to compete in that market and the license and education requirements are keeping me out of it. Whaa. The court missed the point that Enrolled Agents, CPAs, and attorneys ARE required to meet education requirements, are tested, and are required to get CPE, as well as registration requirements. In most states auto mechanics are required to be licensed, as well as hair dressers, and are required to meet education requirements, AND CPE requirements. This judge blew it. The next time I take a flight I going to cite this case and tell the FAA and the pilot to get out of my way because I'm flying the airplane. To heck with the FEDERAL license and education requirements. This case will be overturned, I hope. This is a PROFESSION and those who want in have to pay their dues. There is no room for "wanabees".

That's not true. All of the professions you speak of are regulated at the state level, not the federal. No regulation exists besides SEC rules for Accountants whom don't have the CPA designation  and they do not need CPE courses. CPA's have to take CPE courses to stay up to date with laws in relation to reporting standards for companies to be able to be trusted on a public or international level (some CPE in tax law or business law).  Not all CPA's and attorneys are well versed in tax preparation especially if they are not tax accountants or tax attorney's. Tax Preparation Four months out the year does not a profession make. Only a select few firms are all year round for tax purposes. I am a computer engineer that moonlights to make a little extra during Tax seasons for friends and family and a few people they know (30 clients). I am in school studying for the CPA exam. I have three courses left but all my tax courses were already completed. Besides the fact that this program is overly intrusive (what's next... must I submit a DNA test too - where is this oversight going in the long run Big Brother), why on earth should I have to pay this extra money to prepare taxes in the interim between now and when I sit for the CPA exam. It does not make economical sense to continue (a lot of small business will not be able to compete - making barriers to entry incredibly hard creating a monopolistic environment and possibly screwing with interstate commerce - rich is against the law). There are plenty returns I had to fix that CPA's and attorneys incorrectly filed. Its what prompted people to come to me. I know my stuff. I also create tax preparation software. Chill with the 1984 Big Brother routine. It makes more since to simplify the tax code than to try to overly regulate people to death. If an individual that wants their taxes prepared cares about credentials they will go to there local accountant or attorney. Every person that comes to me knows that I am not a CPA and that I have been doing taxes since 2001. If I fill a return is above what I can do and I can not find help in the many publications that the IRS publishes (by using google search) or get support from the irs , I refer them to somewhere else. I find that being a computer engineer, it helps with problem solving. P.S. There goes VITA, who wants to pay to volunteer.

[mwcpa]

"It makes more since to simplify the tax code than to try to overly regulate people to death"



But, as Congress has seen fit to make the law as complex as it is we need to live with it.....

I personally feel that a "minimal" education level should be required.  We do not want brain surgeon working on my houses electrical system or do we want the electrician working on my brain.  When you go to someone who claims to be a tax professional you expect that they have some basic competencies... and while what pleasant does is great, it is not the norm.... I see far too many "tax experts" read only publication 17 and have a master tax guide as their only research material, put numbers on a form to maximize EITC (illegally), suggest things that are over the line because you won't get caught and do not take credit for their work by calling the form "self prepared"  (I would think since they get paid in cash more than likely it goes unreported because it was not on a 1099 -sarcasm) and operate in the back of a bodega or real estate office.

Basic competency is needed if you want to be paid to assist others in anything, including their tax preparation, the IRS attempted to do this for those working with the federal tax law (this is not a state level issue) and some states have added to that and expanded.  Congress made the law complex and changes it every day.... any competent tax professional that does not adhere to some basic updates (classes) is a fool and his/her clients are being hoodwinked (my personal opinion).

[suek1958]

[Ombud]

Feb 12, 2013 5:01:11 GMT -5 @pleasantlydone said:

moonlights to make a little extra during Tax seasons for friends and family and a few people they know (30 clients)....There goes VITA, who wants to pay to volunteer.

Are you sure they are the same thing? A hobby doing taxes for a fee (hardly pays for the program / training / bond / state certification for only 30 a year) & an IRS trained volunteer doing it for free? Plus they can only do straight-forward 1040s. Think the most complex they get is a Schedule A

[TheOtherMe]

I think VITA volunteers are trained annually and have to take their own test.  They can not prepare tax returns outside the scope of the tests they passed.  The course is free and the volunteers don't have to pay anything.  They give their time and assistance.  VITA volunteers are not preparing tax returns to make money.  They are doing it out of the goodness of their hearts.

[Ombud]

Exactly. Nothing more complex than a Schedule A