You may not have been aware of it, but the only states to previously regulate paid tax preparers have been California and Oregon. New York and Maryland have just joined them as well. It is ironic that in 46 others states, a person who cuts your hair has to meet higher standards of regulation than a person you would have prepare your taxes. In the eyes of the Internal Revenue Service, unless one is an attorney, certified public accountant or enrolled agent, those who prepare tax returns for a fee are considered “unenrolled preparers.”
Generally speaking, the regulations in California consist of obtaining a 60-hour training course in basic individual tax preparation, passing an open-book, self-administered test, obtaining a $5,000 surety bond and paying a $25 annual “registration” fee to the California Tax Education Council. In addition, the CTEC Registered Tax Preparer is required to obtain 20 hours of continuing tax education per year. This only grants the ability to prepare taxes for a fee in California. Oregon’s licensure is somewhat more rigorous and complex. Maryland and New York also have requirements specific to those states.
Keep in mind that it is individual states doing the regulating. None of these forms of regulations are federal in nature and none of them entitle the individual to represent taxpayers before the Internal Revenue Service for appeals, collections or audits. There is a very limited right to represent a taxpayer on a return that the unenrolled preparer prepared, but the right is extremely restrictive. The only individuals who can represent taxpayers are attorneys, certified public accountants and enrolled agents.
For years Congress and the IRS have sought to impose regulations on paid tax preparers but these undertakings gained very little traction. In 2009, the Commissioner of the IRS began to examine this issue more fully. He, along with key IRS staff, undertook a series of open forums to gather information from a wide variety of sources that had a stake in this issue. The result is that, beginning this fall, all paid tax preparers nationwide will have to register with the IRS and within 3 years all paid tax preparers (except for attorneys, certified public accountants and enrolled agents) will have to pass competency exams and submit to continuing education requirements (not as strict as California and Oregon’s requirements). Attorneys, CPAs and enrolled agents have their own set of licensing and continuing education requirements.
What does this mean for you, the taxpayer, seeking professional help? In theory, this undertaking should do two things: First, it should weed out those unscrupulous tax preparers who seek to victimize taxpayers and/or those who are so incompetent that they should not be preparing taxes in the first place. But in order to do this, the public must know that these rules are in place. The IRS plans an extensive outreach to alert taxpayers of these new rules. Tax preparers who seek to take advantage of the public will always exist, but now they will be forced to go “underground” if they weren’t there already. As a side benefit, this should reduce fraud and increase taxpayer compliance. In theory, this should also help reduce, somewhat, the $325 billion federal “tax gap,” which is the difference between what the government should be collecting versus what they are actually collecting. It stands to reason that if you have competent return preparers, the correct amount of tax will be calculated and collected.
Second, as a result of this new initiative, taxpayers should feel more confident that if they seek out the assistance of a paid tax professional, they should receive a somewhat higher level of competency than that which has existed heretofore.
As complex as the tax code is and will likely yet become, there is no substitute for competent tax advice and preparation. One should beware of thinking that these new regulations will be the end-all for “cleaning up” the tax preparation industry; it likely will not. It is a great start, but ultimately, taxpayers will still have to consider the tax professional who possesses the greatest skill level for their particular situation. For more details on all of the regulations being implemented, see the IRS web site at www.irs.gov.
Update on my January Article: The health care bill has stalled in Congress due to the loss of the Democratic Party super-majority. Time will tell as to where the bill will go from here.
Owen S. Arnoff, EA, is the founder and President of Better Business Ventures, Inc., a North Sacramento tax professional helping individuals and small business owners to meet their tax obligations. He has helped hundreds of taxpayers reduce their tax obligations using strategies that most people never knew existed or could be applied to their situation. Give him a call at (916) 481-5252 and see how he can help you. Owen regularly takes over 100 hours of continuing education each year so he can be of maximum assistance to his clients. He has also published a book for small business owners, called “The Successful Business Owners Guide.” Visit his web site at www.BetterBusinessVentures.com. Check out his blog at www.SacramentoTaxBlog.com.
This article is intended to provide accurate and authoritative information with regards to the subject matter covered. It is written with the understanding that the author is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent tax professional should be sought.