Pressure on Tax Preparers

The concept of legislation to regulate all paid tax preparers is so old that professionals have almost come to disregard it as a recurrent idea never to be realized. Just last year, House Bill HR 1528, which would have required paid tax preparers to take an annual exam in order to practice, came very close to passage. However, it died in Committee.

This past April, the Senate introduced Bill S.832 which again proposes to regulate individuals (except those currently regulated under circular 230) who prepare, for a fee, federal tax returns, documents, and other submissions. At the present time, it is still under review in Committee.

If enacted, this bill will require the Treasury to develop (or approve) and administer an eligibility exam to test the technical knowledge and competency of individuals who prepare federal tax returns (including individual and business tax returns and earned income credit) and the knowledge of ethical standards for the preparation of such returns. It will also require renewal of the eligibility to prepare returns every three years. Continuing education will be a part of that eligibility renewal. The Treasury will have one year from date of enactment to issue regulations to administer this provision.

This idea has gained a great deal of support over the past couple of years. It appears that it could very well come to passage this time. There are other provisions in the bill affecting low income taxpayer clinics, enrolled agent credentials, regulation of refund anticipation loan providers, and taxpayer access to financial institutions. To see the bill in its entirety, as well as view commentary and concerns, visit www.natptax.com.

Some tax preparers favor the concept of being licensed and having a credential, while many fear an examination. Others fear they’ll be put out of business. They’ve worked in the tax industry for decades and the prospect of having to pass a test is ludicrous to them. Some are already abandoning or selling their practices.

Consider these ideas:
• Licensure will drive taxpayers to qualified preparers. It will increase business.
• Licensure will give preparers a credential recognized by the IRS and the public. It will distance them from the “fly-by-night” preparers.
• The IRS doesn’t want, and cannot afford, to lose large numbers of qualified tax return preparers. It will decimate the tax administration system.
• Proponents of this legislation have been trying to get something like this passed for the last twenty-five or thirty years. It’s looking better than it ever has, but it would be wise not to bet on passage yet.
• Given the Commissioner’s orientation to allocate as much of what budget he does get toward enforcement activity, the whole exam process could take quite a while.
• If and when a law does pass, industry associations will be involved to ensure that it is fairly administered. They will also provide support.

Hopefully these facts lend some perspective. Is it worth giving up good business over having to take a test? Let’s hope not.

From September 2005