IRS Announces Voluntary Education Program For Return Preparers

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IRS announced yesterday in a news release that it will be rolling out a voluntary continuing education program for unlicensed preparers. It will be effective for the next filing season.

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Basics

Unlicensed preparers with a PTIN who opt in will need to complete 18 hours of annual continuing education from IRS approved providers. Completion will allow the preparer to get a record of completion and will result in the preparer appearing in a database that will be available to the public. The database according to IRS will “contain information about practitioners with recognized credentials and higher levels of qualification and practice rights. These include attorneys, certified public accountants (CPAs), enrolled agents, enrolled retirement plan agents (ERPAs) and enrolled actuaries who are registered with the IRS.”

According to the news release, the hours will need to include

  • 6 hours of federal tax filing season refresher course (with a required comprehension test at completion)
  • 10 hours of federal tax law topics
  • 2 hours of ethics

For 2014, there will be prorated hourly requirements, with preparers needing to complete a total of 11 hours, including the six hour refresher course, three hours of other federal tax law topics and two hours of ethics.

Carrots and Sticks-Database, Circular 230 and Limited Practice

The release states that preparers other than CPAs, EAs or attorneys need not complete the education requirements to prepare returns though they will still have to obtain and maintain their PTINS. Those unlicensed preparers that do not complete the education requirements will not appear on the public database. In addition, effective for returns prepared or signed after December 31, 2015, unlicensed preparers not opting in will also be precluded from representing taxpayers during an examination of a return that they prepared.

The release also indicates that preparers opting in to the program must affirmatively consent “to the duties and restrictions relating to practice before the IRS in subpart B and section 10.51 of Treasury Department Circular No. 230.” (10.51 provides illustrations of incompetence and disreputable conduct that could subject a practitioner to sanctions).

Next Steps

IRS views this as an “interim step to help taxpayers and encourage education for unenrolled tax return preparers.” It indicates that it will consider the feasibility of administering a “uniform voluntary examination in future years in order to ensure basic return preparer competency.”

Quick Thoughts

As I have said before, I think additional oversight over unlicensed preparers is a vital step that will help American taxpayers. It is not a panacea, but it will help taxpayers who are interested in finding preparers who have agreed to put more skin in the game and have taken the time and effort to obtain a credential. Requiring a preparer to take classes alone is no guarantee of competence or scruples (nor would passing a test), but the enhanced visibility and accountability that accompanies the voluntary program as well as the existing PTIN requirements will benefit both the tax system and individual taxpayers.

There will always be taxpayers and preparers who want to game the system. Some preparers may have legitimate reasons to not opt in to the program. For those preparers who choose not to opt in, they can continue business as usual. With uniform registration, IRS has the capability to capture and analyze data relating to commercially-prepared returns. It will hopefully collect and study the information,  analyze differing compliance patterns, and use its existing tools to root out instances of preparer misconduct.

UPDATE–USEFUL LINKS 

Commissioner Koskinen’s statement on the IRS plan

Lots of reaction to the IRS’s announcement, including the following:

A summary of the mixed reaction from Kelly Phillips Erb at the Forbes site here.

The National Taxpayer Advocate issued a statement urging that the IRS proceed with competency testing in addition to the education plan.

AICPA opposition to the plan in a letter to the Commissioner, as reported in Accounting Today. The AICPA summary of its opposition follows:

First, no statute authorizes the proposed program. The IRS’s general authority to administer the tax code under 26 U.S.C. § 7803 does not provide an adequate basis to proceed. Because federal agencies may act only pursuant to a valid delegation of authority by Congress, the IRS may not implement the proposed program. This fatal flaw cannot be overcome by the IRS. That no statutory provision expressly prohibits such a program does not legitimize an otherwise illegitimate act.

Second, and relatedly, the proposed program will inevitably be viewed as an end-run around Loving v. IRS, which held that the IRS lacks authority to regulate tax return preparers under 31 U.S.C. § 330. To be sure, the regulations invalidated in Loving were mandatory, and the proposed program is purportedly voluntary. But in reality tax return preparers would face an overwhelming, compelled incentive to participate in the IRS’s credentialing program, meaning that the proposed program will be de facto mandatory. In the wake of Loving, that is impermissible.

Third, the IRS has evidently concluded, in developing the proposed program, that it need not comply with the notice and comment requirements of the Administrative Procedure Act (“APA”). This is incorrect. Although general statements of policy issued by an agency need not be issued pursuant to notice and comment, because this program would be de facto mandatory, it is for practical purposes a binding rule that must be issued pursuant to notice and comment. The IRS must also comply with the Paperwork Reduction Act, which provides that the IRS must seek approval from the Office of Management of Budget (“OMB”) before collecting personal information from tax return preparers. And because the proposed program is likely a “significant regulatory action,” the IRS will be required to comply with Executive Order 12,866. This will require the IRS to perform a cost-benefit analysis of the proposed program, perform a cost- benefit analysis of reasonably feasible alternatives, and seek approval from the Office of Information and Regulatory Affairs (“OIRA”) within OMB before implementing the program. Notably, in adopting the regulations struck down in Loving, the IRS provided an opportunity for the public to comment, complied with the Paperwork Reduction Act, and obtained OIRA approval. See 76 Fed. Reg. 32,286, 32,286, 32,293 (June 3, 2011).

Finally, the current proposal is arbitrary and capricious because it fails to address the problems presented by unethical tax return preparers who defraud their clients, runs counter to evidence presented to the IRS, and will create market confusion. See 5 U.S.C. § 706(2)(A); Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Aut. Ins. Co., 463 U.S. 29, 43 (1983).

About Leslie Book

Professor Book is a Professor of Law at the Villanova University Charles Widger School of Law.

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