Thursday, March 15, 2012

RTRP Rules Challenged

The Arlington, Virginia-based Institute for Justice, on behalf of a couple of tax preparers, is challenging the Internal Revenue Service’s authority to regulate tax return preparers. The Institute plans to sue the IRS asking for an injunction against enforcement of the new Register Tax Return Preparer (RTRP) regulations. They claim that requiring tax preparers, who are not CPAs, Attorneys or Enrolled Agents, to pass a licensing examination (there is a fee of $116 to take the exam) and attend 15 hours of continuing education courses annually, will deprive them of their right to earn a living.

Well, I can tell you from personal experience: some of them need to be deprived.

When I was growing up, my dad was a struggling small business owner. He was one of those individuals who used an unregulated tax preparer. One year, the errors the preparer made on his return were so egregious that the IRS audited the return. Because of the nature of the errors, the agent went back and audited all open years. As a result my dad received a refund of over $1,000, which was a lot of money back in the 1960s, especially for someone like my dad who had struggled each year to pay those taxes.

There are three ways the group says these new regulations will negatively impact tax preparers and their clients:

1. It will put some tax return preparers out of business.

2. It could cause a financial hardship for their lower income clients resulting from the increased fees.

3. Their clients may have to find a new tax preparer.

My responses to the group’s allegations are as follows:

1. So be it. If they can’t pass a basic competency test they should not be preparing tax returns.

2. I don’t buy this. There are half a dozen or so entities that provide free tax return preparation, including the IRS’s Volunteer Income Tax Assistance (VITA) program. I realize that the free tax return preparation programs are primarily for the most basic tax returns, but if a return is more complex than a basic return you need the services of a qualified tax preparer. (See response 1 above.)

3. If they were using a qualified tax return preparer in the first place this would be a moot point, otherwise: See response 1 above.

What do you think?

21 comments:

  1. Amen to everything you said. I worked for a national chain for 20 years and am an Enrolled Agent. When I initially took their final exam in order to be able to work, the exam included Sch C, E, 2106, 4562 and even touched on the anti-churning rules. Today to work for that same company, you have to be able to fill out a Sch A. Supposedly these first year preparers are only allowed to take the easiest of returns but of course they don't make any money doing this.
    A five year old could set up shop doing income taxes. I have seen such egregious errors and the taxpayer/client is the one who suffers.
    This is the absolute best thing that could happen to our profession. If they can't pass a basic competency test, they should not be preparing taxes. (That needed to be repeated).

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    1. The need for tax return preparers to be competent is not the primary point here. The point is that the IRS does not have the legal authority to regulate tax return prepares. I have years of experience, and other legimate credentials to attest to my ability to prepare tax returns. I don't need to be regulated by a Federal Agency whose top personnel can't even interpret the tax code properly themselves. Read the background on where all of this came from. A former top person with H & R Block was very involved with this power grab scheme. We all know it is really about another sector of Big Business using an agency of the government and trying to eliminate the independent tax preparers so they can grab a larger share of the market and raise rates.

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    2. Thanks for your comment. You make a very good point.

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    3. H&R Block, Jackson Hewitt and other national chains barely train most of their preparers_often 2-3 months classes and most of those students who later apply to work for them are employed. How come the IRs doesn't require all preparers to take the exam without exception and when was the last time one notice a CPA from JH or H&B preparing their clients' returns? The IRS mandate is really a giveaway to the national chains at the expense of smaller preparers. The required 15 hours and additional fees imposed an unfair burden to preparer other than the big chains. Auditing is the fairest and surest mean to examine returns.

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    4. Thanks for your comment. Good observation.

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  2. If you would have read the link, you would have seen that IJ is not just alleging that the regulations are unfair and senseless, IJ is also arguing that Congress never gave the IRS authority to regulate tax return preparers.

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    1. Thanks for your response. I did see that they were contending that Congress’s never gave the IRS authority to regulate tax return preparers. I wasn’t addressing that issue I was only addressing the issues raised by the three tax preparers on whose behalf the IJ was filing suit.

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    2. The issues raised by the return preparers are simply the harms necessary to sustain a lawsuit. The legal claims are what is important here. Good idea or not, if the IRS lacks authority, then its actions are lawless. Rules are not just for little guys, you know.

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    3. I agree. Your point is well taken.

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    4. Just one quick comment (I could go on and on): remember that Treasury and Congress MAKE policy and the IRS simply carries it out. As an EA who is involved with the National Association of Enrolled Agents, I can attest to the fact that our organization has spent years of time and effort to effect this change, and I'm excited to see it happen. Our job as tax professionals is to serve and protect the American taxpayer. What better way than to make sure everyone is served by a knowledgeable preparer?

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    5. Thanks. That is exactly what I was trying to convey with the blog.

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  3. "Amen to everything you said. I worked for a national chain for 20 years and am an Enrolled Agent. When I initially took their final exam in order to be able to work, the exam included Sch C, E, 2106, 4562 and even touched on the anti-churning rules." That is interesting.

    _________________
    Accountants in Keighley

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    1. Thanks for your reply. That is interesting that they would touch on the anti-churning rules in an examination for basic tax return preparers. I am glad to see that I am not the only one who thinks only competent preparers should be doing tax returns for the public.

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    2. I believe the IRS regulation of preparers is appropriate and very necessary. Bills to regulate preparers had been presented to Congress annually for a number of years before the IRS took this initiative. Those bills always died in Congress due to other priorities. The IRS finally got the job done and the tax industry and taxpayers will be far better off because of the regulations. The argument that these three preparers will face hardship is absurd. They should not be in business if they can't demonstrate basic competency and also keep up with the tax laws through annual continuing education. I can't believe that the video shows one of them actually using a typewriter instead of a computer! Unless he can charge the fees necessary to make a profit, he is engaged in a hobby, not a business. The tax industry has needed to improve its image through the implementation of such a professional standard. Legitimate tax businesses and tax preparation customers will benefit through the regulations. Taxpayers will also benefit from a reduction in fraud.

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  4. Chuck, thanks for your comment and insights. I agree with you compltely.

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  5. Very interesting thoughts. I do agree that only competent preparers should be allowed to do tax returns, that's a given. However, in certain states (very few, California being one of them), we are already required to show competency by earning our right to practice through initial examination and education (thusly achieving our CRTP designation), and then ongoing continuing education from year to year. I think that the states that require basically the same thing that the IRS is now requiring of everyone should have had some kind of an 'out' for this new testing requirement. It's an added cost, and it's just not necessary, costing us time and money for something we've already done. We've already been through it, been there done that! In California, the California Tax Education Council has strict education requirements yearly. However, I'm all for the concept of this. It always stuck in my craw so to speak that so many states would just let ANYONE hang a shingle and do taxes. It puts a bad rep on all 'tax preparers'

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    1. Thanks for your insight. I agree with you completely.

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  6. I'm curious as to the status of this 'lawsuit' pending? Was it dropped or is it still in action? Just wondering if anyone knows.

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    1. I have not read or heard of the lawsuits being dropped. I suspect that they are still pending but can not verify that that is the case.

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  7. IRS Lost the Suit....http://www.ij.org/images/pdf_folder/economic_liberty/irs_tax_preparers/irs-opinion-1-18-13.pdf

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  8. Yes I think it is going to be interesting o see how long it takes Congress to grant them the power to regulate the preparers.

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