Transcript Document

The Rise and Fall of the
RTRP Exam and Beyond……
Presented by Mike Deschamps MST EA CPA
Professor of Accounting and Lead Instructor
MiraCosta College
Oceanside, CA
RTRP – How To Describe The
Current State Of Affairs
 “What a long strange trip it’s been”
 The Grateful Dead
 “I used to go away for weeks in a state of
confusion.” Albert Einstein (or any community
college tax instructor at this point)
 “Don't be afraid to be confused. Try to remain
permanently confused.” George Sanders
In The Beginning – The
Preparer Registration Issue!

Senate Bill 832

Would have required that
all tax preparers register
with the IRS and take a
national exam administered
by the IRS.

Why? – Government
Accountability Office in a
study found mistakes in
every return that they
examined from commercial
return preparers (it was a
relatively small sample).

National Taxpayer Advocate
Nina Olson in her 2003
report – “Over 55% of the
130 million individual
taxpayers hired a return
preparer. The majority of
those preparers did not
possess a legitimate license
demonstrating competency
or ethical standards”.

Problem – it meant that even
existing credentialed preparers
could have to take the exam.

National Association of Enrolled
Agents – “ strongly endorses
the concept of regulating all
paid return preparers, requiring
an initial test for competency,
background checks, annual
minimum continuing education
requirements and compliance
with the current Circular 230
ethical standards”.

Only three states at that point
had established entry
requirements for the field of
tax preparation – California,
Oregon & New York.
The Timeline…..

IRS Publication 4832 Return Preparer Review,
published in 2009:


“The precise number of tax
return preparers is not known,
but the IRS estimates that
there are between 900,000
and 1.2 million individuals
preparing tax returns for a
fee.
Although some tax return
preparers (e.g., attorneys and
certified public accountants)
are licensed by their States
and others are enrolled to
practice by the IRS, a large
share of tax return
preparers do not pass any
government or
professionally mandated
competency requirements
before they prepare a
federal tax return.”
In The Beginning……
 The legislation to create the testing
requirement was passed.
 The outline of the exam was based
on survey responses sent to more
than 700,00 tax preparers.
 Who identified the basic knowledge
groupings needed to perform tasks as
a minimally competent tax preparer.
The RTRP Exam Structure
Domain
Approx % of Exam
Domain 1: Preliminary Work and Collection of
Taxpayer Data
Domain 2: Treatment of Income and Assets
Domain 3: Deductions and Credits
Domain 4: Other Taxes
Domain 5: Completion of the Filing Process
Domain 6: Practices and Procedures
Domain 7: Ethics
15%
22%
22%
11%
10%
5%
15%
The Exam (cont)
 Testing began in November of 2011.
 IRS data as of January 3, 2013 indicated
that approximately 53,000 preparers had
passed the exam at that point.
 However, we have since learned that they
had a failure rate of about 26% in that first
testing group and were aiming for a failure
rate of only 10%.
 Does this not beg the question of why
some regulation was needed?
And then…. Loving v. IRS



On March 13, 2012, three
independent tax
preparers joined the
Institute for Justice in filing
suit against the IRS in the
U.S. District Court for the
District of Columbia.
Challenged the IRS’s
Authority To License Tax
Return Preparers.
Essentially stated that the
new regulation
requirements were ”unfairly
burdensome on small tax
businesses”.



Elmer Kilian hangs a wooden
shingle outside his home during
tax season, as he has for the
past 30 years.
He has been preparing taxes
part-time and seasonally on his
dining room table for about 30
years.
How about a little competency
check to go along with that
shingle?
Wisconsin Department of Safety and
Professional Services
 To obtain a barber license by examination:
 Complete ONE of the following education requirements:




Graduate from high school
Attain high school graduation equivalency
participate in a program approved by the department
Be at least 18 years of age and meet the ability to benefit rule
under 20 USC 1091
 Complete ONE of the following training requirements:


Graduate from a prescribed barbering course of at least 1,000
hours in a school of barbering licensed by the department; OR
Successfully complete an apprenticeship of 2,000 hours (288
theory instruction and 1,712 hours of practical training), and then
 Pass the examination*
Loving v. IRS (cont.)


Attorneys for the plaintiffs argued Congress never gave the IRS the
authority to license tax preparers, and the IRS can’t give itself that
power.
Key point of contention - 31 U.S.C. § 330, originally enacted in
1884, giving the Treasury Secretary authority to regulate people who
practice before the Treasury Department.



In dispute was the IRS’s interpretation that tax-return preparers are
“representatives” who “practice” before the IRS.
Plaintiffs argued that filing a tax return would never, in normal usage, be
described as “presenting a case.”
On January 18’th 2013 a federal judge in the US District Court of the
District of Columbia found for the plaintiffs stating in part that “At the
time of filing, the taxpayer has no dispute with the IRS; there is
no “case” to present. This definition makes sense only in
connection with those who assist taxpayers in the examination
and appeals stages of the process”. Case 1:12-cv-00385-JEB
Loving v. IRS (cont.)

February 1, 2013 – The federal judge in the Loving case
denied the IRS’s request to suspend his January 18 ruling that
struck down the IRS’s tax-preparer scheme as unlawful.

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Judge Boasberg clarified that his injunction did not affect a separate set of
regulations requiring tax preparers to have an identification number known
as a PTIN.
March 29’th, 2013 – The US Court of Appeals for the District
of Columbia denies the IRS request of a stay on the January
18’th ruling.
June 5, 2013 – IRS files its motion for appeal of the Loving
case decision.
September 24, 2013 – Oral arguments are heard on the
Loving case in the US Court of Appeals in the District of
Columbia.
And then…….

IRS uses 1884 “dead horse”
law in defense of tax
preparer rules.




The IRS attorney stated he
hated to “beat a dead
horse”, but he did anyway.
After the civil war many
people brought war loss
claims against the US
government often for dead
or missing horses.
From this emerged a class
of agents who would press
the claim against the
government for a fee.
The government proceeded
to regulate these
intermediaries, certifying
reputable ones as “enrolled
agents”.



We still use this title today for
people “enrolled to practice”
before the IRS.
IRS argued that tax return
preparers represent their
customers in much the same
way as EA’s do.
Plaintiffs attorney argued
no, they don’t.

Performing a service but not
a representative act.
And then…….
 February 11, 2014 – The Court of
Appeals for the District of Columbia
renders it’s decision.
 The key question as highlighted by the
three judge panel – “is whether the
IRS’s authority to regulate the practice
of representatives of persons before the
Department of the Treasury.
encompasses authority to regulate taxreturn preparers”.
And then……..
 “In our judgment, the traditional tools of
statutory interpretation – including the
statute’s text, history, structure, and
context – foreclose and render
unreasonable the IRS’s interpretation of
Section 330”.
 In English - the IRS does not have
authority to do this based upon the
legal concepts that they have based
their arguments on.
RTRP Exam – the end?
 At this point, as a mandatory
requirement, yes it is.
 IRS chose not to pursue certiorari
 Meaning they have declined to take this
appeal to the Supreme Court.
 “This brings finality to a major victory for
independent tax preparers—and taxpayers—
nationwide,” said Dan Alban of the Institute for
Justice, lead attorney for the three preparers
who filed the suit.
However…..
 IRS Commissioner John Koskinen: “ the IRS is
still looking at options such as further appeals,
pursuing legislative remedies in Congress, and
offering voluntary credentials for tax
preparers”.
 IMHO – I think that the first two are out of the
picture for now and that leaves door #3 – what
could that look like?
 One significant possibility – State regulation.
 There are already models in place.
The State Models
 Prior to the RTRP
exam creation, three
states had already
begun to regulate tax
preparers:
 New York
 Oregon
 California
 Now, we have a fourth
state in the mix –
Maryland.
 “Section 21-302(e) of
the Tax Preparers Act
provides that an
applicant for
registration shall pass
an examination given
by the Board”.
State Regulation - Issues
 Consistency – the existing four states
with preparer regulation all have
some significant differences in their
requirements.
 Maryland, as previously noted, will
have an exam requirement.
 California does not – places the
burden of ensuring competency upon
the education provider.
California Model


The California Tax Education Council (CTEC) was established by the
California State Legislature to promote competent tax preparation
within the State of California
Who is required to comply with the California Tax Preparers Act?

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To
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Any person who for a fee, assists with or prepares a State or Federal tax
return, or assumes responsibility for such a return, or who offers these
services
become a Registered Tax Preparer in California, you must
Find a CTEC approved curriculum provider,
Successfully complete a 60-hour course approved for qualifying education,
which includes 45 hour of federal instruction and 15 hours of state,
Obtain a tax preparer bond from an insurance/surety agent,
Secure a PTIN (Practioner Tax Identification Number),
Apply to obtain a certificate of completion from CTEC.
In addition, there is a requirement of 20 hours of CTEC approved
continuing education (12 hours of federal taxation, 4 hours of
California taxation and 4 hours of either federal or California). This
education must be taken from a CTEC approved curriculum provider
and completed by October 31 of each year.
If I were King…..
 The individual portion of the Enrolled
Agent exam would serve as the
qualifying test for the RTRP credential.
 Successful candidates would then have
2 or 3 years to pass the entire EA exam.
 If they did not, they would have to go
back and pass Part 1 again in order to
maintain the credential.
What Should Community Colleges Do?
 In the absence of state regulation,
and even with that, I would argue for
increased emphasis on attaining the
Enrolled Agent credential.
 That bypasses any remaining sturm
und drang that might erupt if the IRS
decides to pursue some sort of
legislative remedy to the issue of
preparer regulation.
Preparing Your Students For The
Enrolled Agent Exam

First, in addition to your
individual tax class, need to
add a class or classes that
deal with corporations,
partnerships, estates, and
trusts.

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Plus, there will be other
issues like Circular 230
that will need to be
covered as well.
And like the individual tax
class, practical application
of the concepts through
projects and return
preparation is key!

Second, create a review
class that helps your
students prepare for the
exam:
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
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Can do this in partnership
with local chapters of
professional organizations.
Develop your own using
existing faculty.
The Key – whichever
model that you chose, you
must have instructors who
know tax, understand the
exam, and can teach!!!
Sources and References

Institute for Justice Website - http://ij.org/irs-tax-preparers

ExamMatrix – RTRP News Blog –
http://www.exammatrix.com/rtrp-exam-review/news/

Accounting Today – Senate Committee Mulls Regulation of Tax
Preparers by Michael Cohn, 4/8/2014.

Accounting Today – IRS commissioner Sees Further Appeals as
Unlikely by Michael Cohn, 2/20/14.

AICPA Tax Insider - Regulating all return preparers: Back to the
drawing board by Annette Nelling, 3/13/2014.

Thompson Reuters News Agency – IRS Rides Dead Horse Act by
Patrick Temple-West, 9/24/13.

Thompson Reuters News Agency - U.S. tax preparer rules land in
Congress, tough road ahead by Patrick Temple-West, 3/17/13.