Monday, May 19, 2014

Regulating Tax Return Preparers: The Saga Continues

The IRS has opted not to petition the Supreme Court appealing various rulings striking down its efforts to require mandatory testing and continuing professional education for unlicensed tax preparers (Loving vs IRS). There is still a strong sentiment, however, for mandatory testing and continuing education as noted in the hearing describe below.

The Senate Finance Committee recently held a hearing on how to deal with incompetent and unethical tax return preparers. The committee heard testimony from numerous interested parties, each expressing their recommended solution to the problem. Following is a synopsis of the various recommendations:

  • The IRS offered a volunteer form of certification.

  • The Obama Administration’s 2015 budget includes a proposal to explicitly authorize the IRS to regulate all paid tax preparers.

  • Loving vs IRS was successful in preventing the IRS from regulating paid tax preparers by requiring them to pass a competency test and take CPE.

  • National Taxpayer Advocate Nina Olson supports requiring competency exams for tax preparers.

  • Committee Chairman, Ron Wyden- (D-Ore,) touted his state’s tax preparer licensing standards.

  • Janis Sallsbury, Chair of the Oregon Board of Tax Practitioners recommended that “Congress emulate Oregon’s regulation of tax return preparers and provide the IRS with the authority to require individuals to demonstrate minimum competency in tax return preparation, either by passage of a state board examination or by an IRS examination and to impose continuing education requirements after passing the examination.”

  • Chi Chi Wu, a staff attorney for the National Consumer Law Center stated that the NCLC was in favor of the state licensing approach and they have developed a model act that states could use to implement such laws.

  • Dan Alban, Attorney for the Institute for Justice who successfully sued the IRS in the Loving vs. IRS case, disagreed with the need to give the IRS the authority to re-impose the tax preparer licensing requirements. He recommended a voluntary certification program that would allow both consumers and preparers to decide if they value certification.

  • John Barrick, an associate professor of accounting at Brigham Young University and a CPA, testified that return preparer regulation should be allowed if the costs do not outweigh the benefits.

The majority of the participants supported some form of mandatory competency testing for unlicensed tax preparers. It is interesting to note that Alban and the IRS both recommended voluntary certification. The majority of participants, however, supported mandatory testing for unlicensed tax preparers. 

Should all unlicensed paid tax return preparers be required to pass a competency exam and to take CPE, or are there other ways to ensure that preparers are competent to practice?

What do you think?

1 comment:

  1. Since 43 states have a state income tax, I lean toward the states regulating both state and federal tax preparers. Now wouldn't that be messy?