Can 5,783 People and Businesses be Wrong? IRS Inundated with Comments on Proposed Tax Preparer Regulations

Nov 03, 2010   

Between the end of July and the beginning of November, the IRS reports that over 5,000 people and businesses “ predominantly certified public accountants (CPAs) “ have filed public comments in response to the proposed regulations that would regulate tax return preparers and amend rules governing practice before the IRS.

The IRS has proposed new regulations which are part of the preparer tax identification number (PTIN) system. This system permits tracking of work by all individuals involved in “significant tax decisions.” Under IRS Circular 230 (which enumerates the rules of practice before the Service), anyone who is not an attorney, certified public accountant, or enrolled agent is required to qualify as a registered tax return preparer. This applies to anyone involved in preparing documents that comprise a substantial part of tax returns “ such as the professional and clerical staff of a CPA.

In order to prepare tax returns after January 1, 2011, registered tax return preparers must register with the IRS and possess a PTIN. They are also required to pass a minimum competency examination when testing becomes available, probably beginning in mid 2011. Preparers who pass the exam also will be subject to suitability checks designed to uncover any past conduct that violates provisions of Circular 230. Once registered and accredited, registered tax return preparers have continuing professional education requirements similar to that of CPAs or enrolled agents.

In response to this regulatory initiative, the American Institute of Certified Public Accountants (AICPA) called on its members to blitz the IRS with public comments on the rules. The organization posted a sample email on its website that could be sent to the Service. Chief among the complaints about the new regulations is the PTIN requirement that is extended onto the non-signing tax-return preparers at CPA firms.

Edward Karl, AICPA vice president of taxation, testified before the IRS urging that the Service “exempt staff of CPA firms who prepare tax returns under the supervision of licensed CPAs from the proposed testing and continuing education requirements.” Karl noted that licensed CPAs already closely supervise the work of non-signing staff at firms and opined that such supervision, coupled with state monitoring of CPAs, was sufficient. He further assailed the “high costs and burdens of competency testing,” and suggested, “[t]he IRS should first evaluate whether the use of PTINs and extension of Circular 230 to all practitioners, combined with IRS tracking initiatives, is sufficient to address unethical and incompetent tax return preparation.”

A cursory review of the 5,783 public comments demonstrates that many CPAs have availed themselves to the AICPAs model email. Of the original work submitted to the IRS, however, the requirement that non-signing preparers must register is still the hot button issue. Many other CPAs opined that the extra costs to CPA firms for compliance would need to be passed long to their client taxpayers, which would force more taxpayers to do their own returns and actually increase errors and non-compliance “ results antithetical to the IRSs intentions.

It remains to be seen how the IRS will respond to this groundswell of opposition to their PTIN program.