AICPA Tells IRS Changes Needed to Proposed Regulations To Regulate Tax Preparers and Practice before the IRS
Published October 08, 2010
Washington (Oct. 8, 2010) – The American Institute of Certified Public Accountants laid out changes it believes the Internal Revenue Service should make to proposed regulations that would regulate tax return preparers and amend rules governing practice before the IRS.
“We strongly urge the IRS to exempt staff of CPA firms who prepare tax returns under the supervision of licensed CPAs from the proposed testing and continuing education requirements,” Edward Karl, AICPA vice president of taxation, said in testimony at an IRS hearing. “Nonetheless, we are encouraged by the IRS public statement that they are considering exempting employees of certain professional firms from the testing and continuing education requirements,” Karl continued. He singled out student interns for special discussion.
“We do not believe that student interns should be included in the tax return preparer program.” Requiring them to register with the IRS as a tax preparer and obtain a preparer tax identification number, or PTIN, is “clearly overreaching,” Karl said.
The proposed regulations would require tax preparers who register with the IRS, but who are not CPAs, attorneys or Enrolled Agents, to pass an IRS-administered exam. “Given the high costs and burdens of competency testing, we believe that the IRS should delay implementation of any testing regime,” Karl said. “The 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.” Circular 230 spells out the rules of practice before the IRS.
Karl encouraged the IRS to adopt a more flexible approach to the approval of continuing tax education programs and providers than the one proposed in the regulations, which would generally require IRS approval of all continuing education programs and providers.
“We think the proposed regulations fail to recognize both the volume of continuing education courses that will require IRS approval and the timeliness required in the approval process,” he said. “Significant resources would be required each year to address the thousands of continuing education programs that would be submitted; the costs for these resources ultimately would be borne by taxpayers.”
Regarding the changes re-proposed to provide broader guidelines that are more appropriate for professional ethics standards, Karl said, “We believe that these proposed standards strike a reasonable balance in attempting to establish an equitable framework for applying sanctions.” However, he identified several areas of the proposed amendments to Circular 230 that should be modified or clarified in order for practitioners to understand how to avoid sanctions.
The definitions of reckless behavior and gross incompetence may be inconsistent in different sections of the proposed regulations, he said. Additionally, there is “a need for a clearly defined objective test for determining what constitutes a ‘tax shelter.’” Practitioners need clear guidance in order to avoid sanctions, he said.
“To address these issues, we recommend that a principles-based approach be adopted to state that a practitioner may be subject to discipline under Circular 230 for willfully, recklessly, or through gross incompetence failing to meet the preparer penalty standards under Internal Revenue Code section 6694,” Karl said.
The proposed regulations expand procedures to ensure compliance with Circular 230, and Karl recommended that those procedures be applied in a flexible way that is not a rigid one-size-fits-all regulatory burden. “Our members,” he said, “need to better understand what would be considered to be reasonable steps in establishing adequate procedures, taking into account the size and scope of the firm’s tax practice.”
Read the testimony.