Congress asks the IRS to make changes to planned tax preparer regulations

In a letter addressed to Treasury Secretary Timothy Geithner, 31 members of Congress from both parties, led by Brad Sherman (D-CA) and Michael Conaway (R-TX), expressed their concern with two aspects of the Internal Revenue Service's (IRS) proposal to regulate paid tax preparers. Citing their expectation of increased costs to taxpayers and burdens to both CPA firms and the IRS, the legislators asked the IRS to "(1) exempt Certified Public Accountant (CPAs) from the requirement to register persons working in CPA firms who do not sign a tax return (non-signing preparers) and (2) delay implementation of the IRS preparer examination until such time as it has been demonstrated that return preparer examinations are necessary."

In January, the IRS called for the registration and testing, as well as requirements for continuing professional education on currently unregulated tax return preparers. While CPAs, attorneys and enrolled agents, who are already subject to Circular 230 standards of practice and standards imposed by various professional organizations and licensing authorities, are not required to demonstrate competency, they are required by the proposed regulations to register with the IRS. All signing and non-signing tax return preparers, including CPAs and employees in a CPA firm who work on tax returns, would be required to obtain a preparer tax identification number (PTIN).

The members of Congress argued that the requirement to register non-signers will add to the burden for accountants and increase the cost to clients of tax return preparation. They said that through the signer's PTIN process, the IRS will gain sufficient information to monitor the CPA's practice, and noted that state boards of accountancy were responsible for regulating the activity of CPA firms as well as individual CPAs.

The letter also said that the proposed competency exam that tax preparers other than CPAs, attorneys and enrolled agents will be required to pass, will impose significant burdens on the IRS and will also increase tax preparation costs. The signers said there had been no demonstration of the need for the exam and further, they were not convinced that it would eliminate return preparation problems encountered by the IRS.

"Once the PTIN regime is up and running the IRS will have the capability to track and discipline incompetent preparers," the members of Congress say in their letter. "The IRS should see if this in fact happens before imposing additional costs on the taxpayers and allocating its own scarce resources to a program that may be unnecessary."

The American Institute of Certified Public Accountants (AICPA) agreed, saying in an article in the Journal of Accountancy that it had emphasized many of the same points raised by the members of Congress in an April comment letter to the IRS. In the comment letter, the AICPA recommended that the PTIN, testing, and CPE requirements should not apply to non-signing preparer-employees of CPA firms.

The AICPA also noted in April that the PTIN registration program could address the ethical and competency issues of tax return preparers and that the additional costs of these proposals to the taxpayer should be considered.

At that time, the AICPA expressed concern about providing preparers who are not CPAs, attorneys or enrolled agents with "an apparent credential based on limited qualifications" based on the proposed test. They said that this could cause confusion about the relative qualification of tax return preparers. The members of Congress did not address this concern in their letter to Secretary Geithner.

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