The IRS announced a new initiative on Thursday – called the Annual Filing Season Program – that will allow paid tax return preparers to receive certification if they voluntarily complete certain continuing education requirements.
The nation’s tax agency is only allowed to offer a voluntary certification program, after two courts ruled that the IRS does not have the legal authority to mandate continuing education and competency testing of paid preparers.
“About 60 percent of paid tax return preparers in the United States operate without regulation or oversight. Although many of them do a good job, we have found that others are poorly equipped to assist taxpayers in preparing returns,” IRS Commissioner John Koskinen said on Thursday. “This voluntary program will be a step to help protect taxpayers during the 2015 filing season.”
Starting next year, paid preparers with a valid Preparer Tax Identification Number (PTIN) must voluntarily complete 18 hours of continuing education annually from IRS-approved providers in order to receive certification. The requirements include:
- Six hours of federal tax-filing season refresher course; preparers must also pass a required comprehension test at completion
- Ten hours of federal tax law topics
- Two hours of ethics
“We think this program is important for a number of reasons,” Koskinen said. “It encourages unregulated return preparers who don’t have to meet continuing professional education requirements to stay up-to-date on tax laws and changes. It helps lessen the risk to taxpayers from preparers who have no education in federal tax law or filing requirements. And it allows preparers without professional credentials to stand out from the competition by giving them a recognizable record of completion that they can show to their clients.”
CPAs, enrolled agents (EAs), and attorneys are exempt from the voluntary program because they already meet professional competency requirements.
The IRS noted that for the first year, a transition rule will apply to prorate the required hours. For a return preparer to obtain certification for the 2015 filing season, a total of 11 hours will need to be earned in 2014, including the six-hour refresher course, three hours of other federal tax law topics, and two hours of ethics.
The IRS will soon issue official guidance for the program; at that time, qualifying federal tax-filing season refresher courses will be offered from IRS-approved continuing education providers through December 31, 2014. The agency will issue records of completion to those who have met the requirements in mid-October 2014 after the 2015 PTIN renewal season starts.
Paid preparers who volunteer for the program and receive certification from the IRS will be included in a database on the agency’s website. The database will be available by January 2015 to help taxpayers determine return preparer qualifications.
It will also contain information about practitioners – such as CPAs, attorneys, EAs, enrolled retirement plan agents (ERPAs), and enrolled actuaries registered with the IRS – who have recognized credentials and higher levels of qualification and practice rights.
Tax return preparers with a valid PTIN but who do not obtain a record of completion through the voluntary program – or are not an attorney, CPA, EA, ERPA, or enrolled actuary – may still prepare tax returns but will not be included in the public directory.
A few years ago, the IRS attempted to regulate paid preparers in the United States by launching the Registered Tax Return Preparer (RTRP) program. The initiative required unlicensed preparers to obtain a PTIN, pass a competency test, pay an annual application fee, and complete 15 hours of continuing education annually.
But independent tax practitioners Sabina Loving, John Gambino, and Elmer Kilian spearheaded a legal challenge of the RTRP program in 2012, claiming the regulations would result in fee increases, a loss of business, and possibly shuttering their mom-and-pop tax-preparation operations.
The IRS argued that the “Horse Act” of 1884 – a statute passed to govern compensation claims for dead horses brought on behalf of Civil War veterans, which is now codified under Section 330 of Title 31 of the US Code – authorized the agency to “regulate the practice of representatives of persons before the Department of the Treasury.”
But the IRS suffered a blow in federal appeals court last February when a panel of three judges upheld a lower court’s 2013 ruling that the agency did not have the legal right to regulate tax return preparers, which invalidated the RTRP program’s testing and education requirements.
The IRS had until May 12 to file a petition with the US Supreme Court to appeal the two courts' rulings, but chose not to.
The agency noted on Thursday that prior to the courts’ decisions, more than 62,000 paid preparers had passed an IRS-administered competency test and completed the requirements to become RTRPs. The Annual Filing Season Program will exempt RTRPs and others who have successfully completed certain recognized national or state tests from the filing season refresher course that will be required for other participants, according to the IRS.
Koskinen emphasized on Thursday that he is hopeful Congress will pass a proposal in the Obama administration’s fiscal year 2015 budget that would authorize the IRS to regulate all paid tax return preparers.
“This voluntary program is not the ideal solution. But until legislation is enacted, we still have a responsibility to taxpayers and to our tax system to keep moving forward with our efforts to improve service to taxpayers,” he said.
Kathy Pickering, executive director of the Tax Institute at H&R Block, said in a written statement on Thursday that the tax-preparation company supports the IRS’s voluntary certification program.
“H&R Block has long supported efforts to elevate the standards in the tax-preparation industry in order to provide better service and protections for all consumers. Many industries, most with much less access to one’s personal financial history and other private information, require minimum competency standards,” she said. “H&R Block supports Congress enacting mandatory standards for professional tax return preparers. Until Congress is able to act, however, a voluntary certification program is essential for protecting consumers.”
On the other hand, the American Institute of CPAs (AICPA) sent a letter to Koskinen on June 24 strongly opposing the voluntary certification program, saying it “would cause significant legal problems that may ultimately frustrate the IRS’s goals, confuse the public, and lead to litigation.”
Describing the program as “unlawful and improper,” the letter – a follow-up to a letter the AICPA sent to the IRS on May 21 – stated that it is essential that any regulatory approach instituted by the IRS to address this issue has a firm legal basis and reflects sound policy.
“We have sought to work with the IRS to achieve workable solutions to regulate tax return preparers and protect the public, and we stand ready to continue these efforts,” the letter stated.