Early last month during a Senate Finance Committee hearing, IRS Commissioner John Koskinen hinted at the possibility of the agency implementing a short-term voluntary continuing education program for paid tax preparers.
The American Institute of CPAs (AICPA), however, does not think that is a good idea, saying that such a program would result in increased confusion among the tax administration and tax preparation community.
In a letter sent to Koskinen on Wednesday, AICPA President and CEO Barry Melancon and AICPA Tax Executive Committee Chair Jeffrey Porter wrote that the organization has “deep concerns with regard to a voluntary system and the speed with which the IRS is moving to implement such a system.”
“We believe a voluntary program would create confusion regarding the relative proficiencies of the various types of preparers,” the letter stated. “In addition, the proposed voluntary system would undoubtedly leave the impression among most taxpayers that certain tax return preparers are endorsed by the Internal Revenue Service.”
After the IRS was dealt a blow in a federal appeals court in February – when a panel of judges upheld a lower court’s 2013 ruling that the agency did not have the authority to regulate the estimated 600,000 to 700,000 paid tax return preparers in the United States – Koskinen went before the Senate Finance Committee to request that Congress pass legislation that would give the IRS that oversight. Many senators who sit on the Finance panel, including its chairman, Ron Wyden (D-OR), agreed that federal oversight over paid preparers is needed.
Until then, Koskinen noted, the voluntary certification program would give the IRS a temporary way to provide competency testing and continuing education to paid preparers who participate in the initiative.
“We believe this level of service will translate into improved overall tax compliance and, certainly with that, more effective tax administration,” Koskinen told the Senate Finance Committee.
But the AICPA contends that a voluntary system would undermine an existing IRS program that mandates professional competency requirements for tax attorneys, CPAs, and enrolled agents.
“We foresee a tremendous challenge in explaining to taxpayers, as consumers, the difference between individuals with a PTIN [Preparer Tax Identification Number], those preparers who are authorized to prepare returns and represent clients before the IRS, and individuals who have availed themselves of the voluntary regime,” Melancon and Porter wrote. “Any attempt to explain the differences would invariably sound like an endorsement of only that subset of individuals who availed themselves of the voluntary regime. In short, we are concerned about the confusion that may be generated in the marketplace in an environment where PTIN holders may prepare returns but may not be persons who subject themselves to an IRS voluntary program, and whether the consuming public would be able to discern the difference.”
The AICPA’s Solutions Are …
Instead of a voluntary program, the AICPA recommends that the IRS implement a comprehensive preparer enforcement strategy. Melancon and Porter noted that PTIN registration already gives the IRS important data on activities of specific tax return preparers, as well as classes of preparers, in a way that allows the agency to tailor compliance and education programs accordingly.
“We urge the IRS to utilize the current PTIN program to track preparer activity, identify patterns of fraud and incompetence across returns prepared by specific individuals, and to institute compliance programs to deal with incompetent or unethical preparers,” the letter stated. “A voluntary system would not accomplish this goal.”
The AICPA also requested that the IRS more narrowly define the term “preparer” for PTIN purposes, excluding certain “supervised employees,” to avoid subjecting the profession to overregulation. The AICPA also believes the IRS should use its authority to administer penalties and sanctions against unethical return preparers. Specifically, the AICPA pointed to the following six sections in the Internal Revenue Code:
- Section 6694: Civil penalties for understatements due to unreasonable positions or willful or reckless conduct.
- Section 6695: Civil penalties for (i) failure to furnish a copy of the return to the taxpayer, (ii) failure to sign the return, (iii) failure to put the PTIN on the return, (iv) failure to retain copies of returns prepared or a list of taxpayers for whom returns have been prepared, and (v) failure to comply with due diligence requirements relating to EITC [Earned Income Tax Credit] claims.
- Section 6701: Civil penalties for aiding or abetting an understatement.
- Section 6713: Civil penalties for disclosing or using taxpayer-provided information other than for return preparation.
- Section 7206: Criminal penalties, including imprisonment, for willfully aiding or assisting in the preparation of a fraudulent return.
- Section 7407: Authority to seek injunctions against return preparers engaging in specified behaviors, including fraudulent or deceptive conduct that substantially interferes with proper administration of the tax laws.
Other recommendations the AICPA noted in its letter to Koskinen include:
- The IRS should seek an open dialogue with stakeholders and the public on the proposed voluntary certification program, as well as more efficient measures to protect the public from fraudulent or incompetent preparers.
- The IRS should implement a communications strategy to educate the public about the preparer’s requirement to obtain a PTIN, renew the PTIN, and to include it on returns they prepare.
- The AICPA does not believe the expenditure of resources for marketing a voluntary program is a prudent use of taxpayers’ dollars. It encouraged the IRS to use its resources for more effective measures.
- The IRS should provide more transparency with regard to the annual PTIN user fees. Specifically, the AICPA requested that the IRS explain how the user fees are currently utilized and whether the agency anticipates using the user fees to fund or partially fund any part of a voluntary certification program in the future.