AICPA Expresses Strong Concern over IRS Program

The Internal Revenue Service (IRS) just couldn’t wait for Congress to pass legislation giving them the authority to regulate unregistered paid tax return preparers.  So, on June 26, 2014 the IRS announced a “voluntary” Annual Filing Season Program (AFSP) outlining the new program that focuses on continuing education and filing season readiness for unregistered paid tax return preparers.

The AFSP program will allow unenrolled return preparers to obtain a record of completion when they voluntarily complete a required amount of continuing professional education, including courses in basic tax filing issues and updates, ethics, as well as other federal tax law matters.

According to IRS Commissioner John Koskinen, “This voluntary program will be a step to help protect taxpayers during the 2015 filing season.” However, not everyone agrees with the commissioner.  In fact, the AICPA calls the program unlawful and improper.

The following are excerpts from the AICPA’s letter to IRS Commissioner Koskinen explaining the basis for their concern:

I.                 The IRS must identify a statutory basis for any regulatory approach it creates.

·       No statutory authority, including 26 U.S.C. § 7803, authorizes the proposed program.

·       If the IRS cannot identify a clear, specific statutory basis for its action, then under the Administrative Procedures Act (APA) it may not act.

II.              A purportedly “voluntary” program would be an end-run around Loving vs. IRS.

·       The proposed program would also undermine the legal rationale given by the court in striking down the tax return preparer regulations.

·       The “voluntary” program would undermine the important concerns underlying Loving.

III.            The IRS must comply with procedural requirements.

·       The IRS must comply with the APA’s Notice and Comment procedures.

·       The IRS must comply with the Paperwork Reduction Act and with Executive Order 12,866 (Regulatory Planning and Review).

IV.             The proposal is arbitrary and capricious.

·       A voluntary program would not address the problem of unethical or fraudulent tax return preparers.

·       A voluntary program could give rise to confusion among consumers.

·       The IRS has not sufficiently considered alternative methods of ensuring that tax return preparers are qualified and competent.

For a complete copy of the AICPA’s 14 page letter go to the following website: http://www.aicpa.org/Advocacy/Tax/DownloadableDocuments/AICPA-Letter-to-Comm-Koskinen-June-24-2014.pdf .

I think the IRS is trying to do the right thing, but I believe that they are going about it in the wrong way. I agree with the AICPA that any approach the IRS takes must be supported by a strong legal basis and sound policy. To acquire that legal basis will require congressional intervention; however, Congress probably won’t act until after the next elections.

What do you think?

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?

Regulating Tax Return Preparers

Do you realize that hairdressers are more heavily regulated than a mom and pop tax shop who offers to prepare your tax return? There is even reported to be a Laundromat in the Bronx offering tax prep services.

In most states, anyone can set up shop and offer tax preparation services without needing to demonstrate any level of competency.  Currently, only three states (California, Maryland, and Oregon) have laws addressing the necessary qualifications to prepare federal or state income tax returns.

Shouldn’t you look for a well-qualified individual to prepare your taxes? After all, you are legally responsible for the information in your tax return whether you pay someone else to prepare it or not.

The Internal Revenue Service tried to regulate unregistered tax preparers but has been temporarily stopped as the result of U.S. District Judge James E. Boasberg’s ruling in favor of three independent tax preparers. The judge found the IRS had exceeded its statutory authority in imposing requirements for mandatory testing and continuing education for tax return preparers. Congress is considering giving the IRS that authority.

Not everyone is waiting on the IRS.  The state of New York, Department of Taxation and Finance, proposed amendments to its Personal Income Tax Regulations and Procedural Regulations to regulate New York tax return preparers. The proposed rules would add requirements imposing minimum standards on who can become a tax return preparer, instituting a continuing education requirement, and requiring a competency exam, all similar to the IRS‘s Registered Tax Return Preparer  (RTRP) program.

To further muddy the water, the new Commissioner of the IRS, John Koskinen, has come out in favor of a volunteer tax preparer certification. This is basically the RTRP approach only on a volunteer basis rather than a mandatory requirement.

Three approaches to regulating tax preparers have been offered:

1.     Wait until Congress gives the IRS authority to regulate tax preparers.
2.     Implement tax preparer regulations by state governments.
3.     Adopt a volunteer certification program.

Only time will tell which of these options will win. Which one do you think should be used?

State Governments to Regulate Unlicensed Tax Preparers

According to governmental regulators, tax return preparation problems are more likely to occur among small mom-and-pop tax return firms. In November 2013, The National Consumer Law Center, a consumer-advocacy group, reported on examples of unlicensed tax preparer problems and called for states to enact their own rules. The Internal Revenue Service’s attempt to regulate these unlicensed tax preparers was blocked by a law suit filed by a libertarian group opposing the federal regulations. (RTRP Rules Challenged) The Obama administration has appealed the ruling and a decision is expected in the near future. In addition, legislation has been introduced in Congress that would give the IRS the authority to impose regulations on unlicensed tax return preparers.

New York is now the fourth state to pass regulations governing unlicensed tax return preparers, joining the states of California, Oregon, and Maryland. New York will require independent preparers to pass a competency test and take continuing education classes before being allowed to prepare income tax returns for the public.

Among the new rules, New York preparers cannot charge “an unconscionable fee” and must adhere to “best practices” according to the New York Department of Taxation and Finance site. The state’s new rules became effective December 11, 2013 and carry possible criminal penalties.

New York taxpayers will eventually be able to look up tax preparers on the department’s web site to see if they are complying with the rules. A spokesperson for the department indicates that they will be investigating complaints, assessing penalties and seeking criminal prosecution.

What do you think? Should the states or the federal government be the authority to regulate unlicensed tax preparers? 

DOMA Ruling Explained

On June 26, 2013 the Supreme Court ruled the Defense of Marriage (DOMA) act unconstitutional in a 5-4 decision. Specifically, the court struck down section 3 of the act which defines “marriage” as a legal union between one man and one woman and “spouse” as a person of the opposite sex who is a husband or wife. Upon repeal of DOMA, the federal government will now recognize all legal same sex unions in states that allow same sex unions. This aspect of the ruling is quite clear. 

What is not yet clear is the implication this will have on federal tax law and the affect this ruling will have on same sex couples immediately and moving forward. In some ways, this ruling will simplify tax law: same sex couples filing jointly in their state will now be able to file jointly with the federal government as well. Some aspects of the law are less simple and will require further clarification from the IRS as time passes.

Details of the Ruling

Traditionally, the regulation of marriage is an authority granted to the separate states. There are some examples where federal law regulates marriage in order to further federal policy, but generally the federal government seeks to limit the implications of these exceptions. The Supreme Court deemed DOMA §3 unconstitutional because of the far reaching implications of the provision—it affected over 1,000 federal statutes and many regulations.

Furthermore, rather than promote consistency, DOMA treated married couples within the same state differently, imposing restrictions, stigma and disabilities onto a state defined class. Those judges striking DOMA were concerned with the equal protection issues and they argued that the law makes unequal a subset of state-sanctioned marriages in areas ranging from taxes to Social Security and veterans' benefits. It is important to note that the scope of this ruling is confined to only “lawful marriages.”

Immediate Tax Implications

The following are among the tax breaks newly available to legally married same-sex couples:

... the right to file a joint return;

... the opportunity to get tax-free employer health coverage for the same-sex spouse;

... the opportunity for either spouse to utilize the marital deduction to transfer unlimited amounts during life to the other spouse, free of gift tax;

... the opportunity for the estate of the first spouse to die to get a marital deduction for amounts transferred to the surviving spouse;

... the opportunity for the estate of the first spouse to die to transfer the deceased spouse's unused exclusion amount to the surviving spouse;

... the opportunity to consent to make "split" gifts (i.e., gifts to others treated as if made one-half by each); and

... the opportunity for a surviving spouse to stretch out distributions from a qualified retirement plan or IRA after the death of the first spouse under more favorable rules than apply for nonspousal beneficiaries.

Many other tax provisions are affected by a taxpayer's marriage status, such as the deductibility of alimony paid to a spouse or former spouse and the availability of the innocent spouse protections.

Planning Tips

Married same-sex couples who filed separate federal returns due to DOMA should consider filing amended returns with claims for refund, where applicable. Filing jointly may produce a lower combined tax than the total tax paid by the same-sex spouses filing as single persons, but this can also produce a higher tax, especially if both spouses are relatively high earners. Tax professionals should calculate for their same sex couple clients their past returns to determine if an amended return will result in a refund.

Married same-sex couples should also amend their estate plans to take advantage of many of the favorable provisions listed above. It is estimated that there are more than 100,000 same sex marriages in the USA. This means that as many as 300,000 amended returns could potentially be required in the near future. Tax professionals should consider filing protective claims for tax returns for which the statute may be about to expire.

Areas for Further Exploration

Because the recent ruling limits its scope to “lawful marriages” it is yet to be seen how the federal government will handle domestic partnerships and civil unions of same sex couples. It is possible that the current ruling will only affect those couples living in states where same sex marriage is legal.

Additionally, the Supreme Court did not strike down section 2 of DOMA which allows states to refuse to recognize same sex marriages performed in other states. Because of this, a couple may be legally married in one state, but living in a state that does not recognize their marriage as valid. It is yet to be seen how the government will view these marriages on a federal level.

Tax professionals will have to wait for the IRS to issues procedures for dealing with these complicated situations.

The Gear Up Editorial Team

RTRP Program Suspended - Answers to Your Questions

As you are probably aware, on January 18, the U.S. District Court for the District of Columbia issued a permanent injunction preventing the IRS from enforcing the RTRP regulations. On Wednesday January 23, the Justice Department, on behalf of the IRS, filed a motion to suspend the injunction pending resolution of the appeal that the IRS intends to file. On January 28, the Plaintiffs filed opposition to the IRS motion to suspend the injunction.

With all of these injunctions, motions, and oppositions you probably have questions about your participation in the RTRP program. Here are answers to some of those questions.


Will I still have to take the RTRP test? – No. At this time the RTRP test is no longer required. As such, the test is no longer offered by Prometrics. However, the Department of Justice, on behalf of the IRS, has filed a motion to suspend the judge’s ruling pending the IRS’s appeal. Stay tuned. The test may be reinstated in the future.


Will I still have to complete 15 hours of continuing education (CE)? – The answer is no, unless you are an EA, CPA or attorney. However, if you prepare individual federal income tax returns, in my opinion, it is in your and your client’s best interest to learn about the new tax laws and regulations affecting 2012 filings. CE is not currently mandatory for RTRPs, and any option to proceed with registering for or participating in a CE program is strictly voluntary.


Do I have to renew my PTIN to prepare tax returns for 2012? – We don’t know at this time. However, the IRS posted the following message on their Facebook page on January 29:


Currently we are working diligently to resolve issues surrounding the issuance of Preparer Tax Identification Numbers (PTINs) for the filing season. Additional information will be provided shortly as to how to obtain PTINs.


May I schedule a date to take the RTRP test? – No. The Federal Judge’s ruling has effectively closed the RTRP testing and registration process for the time being.


I am scheduled to take the RTRP test later this year, can I still take the exam? – No, not at this time. The Prometric testing system for RTRPs has been suspended until further notice. They have indicated that you will be notified when additional information is available.


I have already received my RTRP certificate. Can I continue to use the RTRP designation? – The future of the RTRP designation is currently unclear; however, I have seen nothing that would indicate you could not continue to use the RTRP designation if you have passed the exam and received your certificate.

Can I take the RTRP test prep course for CE? – Currently the judge’s order makes continuing education voluntary, but no CE will be awarded.


I expect that if the IRS does not win their appeal, Congress will pass legislation giving them the power to regulate unlicensed tax preparers…but when that might occur is anyone’s guess. What do you think?

Here Comes the Judge: New Ruling for Registered Tax Return Preparers

On Friday January 18, 2013, Judge James E. Boasberg of the United States District Court for the District of Columbia struck down the IRS’s Registered Tax Return Preparers (RTRP) program and enjoined the IRS from enforcing the regulations.

The Court’s Decision

• Boasberg ruled against the IRS and in favor of the unenrolled tax preparers. The ruling eliminates the requirement for unenrolled tax return preparers to pass the RTRP examination or to obtain 15 hours of continuing professional education each year in order to prepare income tax returns for pay.
• The ruling states that tax return preparers are not “representatives who practice before the IRS.” The court equated “practice” with advising and assisting taxpayers in presenting their cases before the IRS, and filing a tax return would not be described as “presenting a case.”
• The ruling also granted permanent injunctive relief, enjoining the IRS from enforcing its regulation scheme against unenrolled tax preparers.

Options for the IRS

The IRS has the following options:
• Abandon any further attempts to regulate unenrolled tax preparers.
• Appeal the judge’s ruling.
• Seek congressional statutory authority to regulate RTRPs.

Options for the Unenrolled Tax Preparer

RTRP’s have the following options:
• Go about business as usual with no need to pass the RTRP exam or obtain the required continuing education.
• Continue to comply with the RTRP regulations voluntarily.
• Become an Enrolled Agent.

The court ruling striking down the RTRP regulations does not have any effect on the IRS’s Preparer Tax Identification Number (PTIN) requirements. All paid tax return preparers will still have to obtain their PTIN each year.
If you plan to, or have already become an RTRP, I would recommend that you voluntarily take the 15 hours of continuing education each year. If the IRS does obtain the authority to regulate unenrolled tax preparers (which I believe is the likely outcome), you will be ready and up-to-date on the latest tax laws.

Here at Thomson Reuters, we have created courses, webinars, and a subscription package designed specifically to meet RTRP regulations. Regardless of the outcome of this ruling, we are happy to have developed products that are customized specifically for tax return preparers who need clear and succinct update training to meet the needs of their clients each tax season.

I think the IRS will probably seek congressional statutory authority to regulate RTRPs; however, with Congress’s lack of ability to pass any meaningful legislation it may take a very long time. What do you think?

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?

RTRP Test Validation Concluded

The Internal Revenue Service has just announced that it has begun providing test results to tax return preparers who have taken the new return preparer competency test. Those who pass the test and a tax compliance check will be given a new designation: Registered Tax Return Preparer (RTRP).

Testing began in November 2011 and has been in a calibration phase since that time as the IRS validated the test questions and established the passing grade. The calibration phase has now ended. The test has a total of 120-question. A perfect score is 500. Preparers must score at least 350 (70%) in order to pass the exam. The test is part of a larger IRS effort to ensure competency and professional standards in the tax preparation industry. All RTRPs must also complete 15 hours of continuing education annually.

Although preparers have nearly two years to take the test (must pass the exam by December 31, 2013), the IRS encourages them to complete the requirement as soon as they can. Preparers with a testing requirement can schedule the test by accessing their PTIN account at IRS.gov/ptin. The test can be taken at more than 260 sites for a fee of $116. However, the IRS has announced that testing will be suspended for a two-week period beginning April 1 and resume on April 16, 2012. You can find more details about the test at IRS.gov/taxpros/tests.

If you're planning to take the test, check out the Registered Tax Return Preparers Competency Examination Prep Course from Gear Up, a one-day, comprehensive instructor-led course designed to provide you with the training you will need to pass the exam. Currently available this May or June in Arizona, California, Florida, Illinois, Oregon, and New Jersey; click to view more information or call 800.231.1860.