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Saturday, February 7, 2015

Directory of preparers and Annual Filing Season Program (AFSP)

Source: 2014 National Taxpayer Advocate report
Remember back in 2010, the IRS rolled out its plan to regulate all return preparers. Those who were not a CPA, attorney, Enrolled Agent or non-signing/supervised preparer would have to pass a test and complete continuing education from IRS approved providers. That plan though was shot down in the DC Circuit in the Loving decision (click here for IRS response). The IRS even had to reinstate some practitioners it had previously suspended from practice because these individuals were only preparing returns (they were not otherwise representing taxpayers before the IRS).

The court found that Title 31 of the US Code, Section 330, did not give IRS authority to regulate preparers who did not "represent" taxpayers before the IRS. So, one solution would be for Congress to modify Section 330. There are proposals, but no action yet. In fact, Senator Wyden introduced a proposal in January 2015 - the Taxpayer Protection and Preparer Proficiency Act of 2015 (S. 137).

Soon after the loss in Loving, the IRS announced a voluntary system called the Annual Filing Season Program.  Individuals need 18 hours of continuing education from IRS approved providers including 6 hours of tax updates that include items specified by the IRS. The 6 hours must include passing a 100 question exam created by the provider. Individuals who passed the Registered Tax Return Preparer (RTRP) exam before the IRS had to shut it down, as well as preparers regulated by California, Maryland or Oregon, were exempt from the exam and 6-hour refresher course, but had to complete 15 hours of continuing education from IRS approved providers, to obtain the AFSP.

What are the benefits of obtaining the AFSP Record of Completion?  The IRS will include you in a searchable database, just released 2/5/15 (it also lists CPAs, attorneys and Enrolled Agents who have a PTIN). The IRS will also promote this designation to the public (along with other designations). The AFSP folks must also agree to be subject to Circular 230 which also enables them to represent clients before the IRS in an examination if they prepared the return (they may not represent a client in a collections or appeals matters) (click here for more details).

Well, how many preparers signed up for the AFSP?  Per recently released IRS stats, 42,179!  That's a lot, but the total population of preparers who are not CPAs, attorneys, or Enrolled Agents is just over 300,000 (so about 14% signed up).

I used the database to see that within 5 miles of my home, there are this many individuals with a PTIN:

  • 170 AFSPs (a few are also Enrolled Agents)
  • 882 CPAs (likely because I'm within 5 miles of downtown San Jose)
  • 108 attorneys
  • 353 Enrolled Agents
The database doesn't link me to the preparer. A web search is needed to find the person (or perhaps they are in the phonebook!).

Is this voluntary system a good idea?  Well, 18 hours of continuing education including 6 hours on new law, is a good idea. In comparison, California CPAs need to have 80 hours every two years. It is not unusual to find tax update courses that are 8 to 16 hours long. I co-teach such a course for CalCPA (16 hours) and we can't delve too deeply into everything in that time allotment, so 6 hours is a bit short. Also, agreeing to be subject to the rules of conduct under Circular 230 is a good thing. It means that these preparers are not worried about being subject to extra rules of competence, due diligence and more.

I think the IRS should be allowed to do more. The tax law becomes more complex every year. This current filing season (for 2014 returns) will be one of the more complex due to individuals dealing with two new complex Affordable Care Act provisions (the Premium Tax Credit and the Individual Shared Responsibility Payment). Individuals should have some level of assurance that the person they hire to prepare their return knows something about the tax law, compliance and current issues and rules.

What do you think?

Additional links from the IRS:
  • IR-2014-75, June 26, 2014 -- New IRS Filing Season Program Unveiled for Tax Return Preparers


  • FS-2014-8, IRS Unveils Filing Season Program for Tax Return Preparers, Answers Frequently Asked Questions


  • Revenue Procedure 2014-42


  • More from Professor Nellen:

     

     

     

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