VSCPA Expresses Concerns Regarding IRS Proposal to Regulate Paid Income Tax Return Preparers

July 1, 2010

The Honorable Mark Warner

United States Senate
Washington, DC 20510  

Dear Senator Warner: 

On behalf of the 9,000 members of the Virginia Society of CPAs (VSCPA), we are writing to state our concerns with two aspects of the recent Internal Revenue Service (IRS) proposal to regulate paid income tax return preparers, and we urge you to contact the IRS and ask it to (1) exempt CPA firms from the requirement to register persons working in CPA firms who do not sign a tax return (non-signing preparers) and (2) delay implementation of the IRS preparer examination, particularly with regard to the non-signers. In particular, we believe the costs associated with implementation of an examination will have a negative impact on American businesses, particularly small businesses, without clear public protections. 

IRS Commissioner Douglas Shulman’s December 2009 Return Preparer Review Report called for the IRS to “require all individuals who are required to sign a federal tax return as a paid tax return preparer to register and obtain a preparer tax identification number.” The report also indicated “[t]he IRS will study the impact and necessity of expanding this registration requirement to non-signing tax return preparers in the future.”

Unfortunately, the IRS has, on its own, decided not to study this issue and has indicated that it intends to issue additional regulations that would include non-signing preparers without the benefit of additional study. Expanding the registration requirement to potentially thousands of non-signing preparers is not a decision to be made lightly; rather, the study needs to determine the consequences, including the burdens placed on small business and the costs and benefits to the public of expanding the registration requirement in the future.

For the reasons discussed below, we recommend that any final regulations specify that the preparer tax identification number (PTIN) requirements at a minimum either (1) not apply to non-signing preparer-employees of CPA firms or (2) be delayed until a study has been completed.

In the capital markets reform bills currently the subject of a House/Senate conference, both the House and the Senate exempted CPAs and employees of CPA firms from duplicative governmental regulatory oversight provisions of the consumer financial protection agency because Congress recognized that the existing federal and state regulatory regimes already provide ample protection for the public. The situation regarding non-signing preparers in a CPA firm is analogous and should be treated similarly.

CPA firms stand behind all of the work done by their employees. The requirement that the signing preparer obtain and place his or her PTIN on the return should give the IRS sufficient information to monitor the CPA’s practice without the need to extend the PTIN process to non-signing preparers. When combined with the regulation of CPAs by state boards of accountancy and Treasury Department Circular 230 (the rules governing practice before the IRS), we even more strongly believe the PTIN requirement should not be extended to non-signing preparers of CPA firms. This existing multi-level layer of both CPA and CPA firm regulation is an important distinction from tax return preparer businesses that are not subject to this level of regulation and scrutiny.

Preparation of tax returns in CPA firms often involves the use of staff working toward becoming CPAs, some of whom have passed the CPA Exam but have not yet fulfilled the experience requirement for licensure. Many CPA firms also utilize interns as a resource, an arrangement which provides valuable experience to those students. In addition, paraprofessional personnel sometimes assist in tax return preparation. Regardless, a CPA generally reviews and signs the return and takes responsibility for the overall accuracy of the return. Because the definition of a non-signing preparer is based on facts and circumstances, the subjective nature of these proposed regulations may force firms to be over-inclusive in who must obtain a PTIN.

One ramification of the non-signing preparer construct as proposed for CPA firm employees is that it creates another regulatory duplication regarding testing. We understand that proposed Circular 230 rules will require non-CPA non-signing preparers working at CPA firms to take an IRS examination. This does not make sense for CPA firms already subject to the multi-level layer of regulation. In fact, we believe the IRS examination is unnecessary at all because the assignment of PTINs by the IRS should prove effective in identifying preparers who are not competent. By tracking tax returns by PTIN numbers and by having all tax return preparers subject to Circular 230, the IRS will go a long way toward achieving the goals stated in the Commissioner’s Report — enhancing compliance and elevating ethical conduct — goals we support. Because of this, we believe the IRS should delay any testing element of its proposal until it can be determined whether the PTIN regime successfully raises preparers’ competency level. Imposing a testing requirement without knowing whether it is needed imposes an unnecessary additional regulatory burden on CPA firms in particular, but on all preparers in general. Those associated costs will hamper American business — particularly small business — without clear public protections.

Making the IRS aware of these concerns will help focus its program on addressing the fundamental goal — tracking incompetent preparers by their PTIN and shutting them down. The VSCPA supports that goal.

We request that you impress upon the IRS the need to: (1) exempt CPA firms from the non-signing preparer requirements of the proposed preparer tax identification number (PTIN) regulations and (2) delay the examination requirement until the PTIN registration process is fully implemented and it can be determined if further action is necessary to bring tax preparation to an acceptable standard — a goal we support, and which needs to be balanced with the appropriate level of regulation.

Thank you for considering our request that you reach out to the IRS, and please contact me or VSCPA Government Affairs Director Emily Walker at ewalker@vscpa.com or (804) 612-9428 if we can be of further assistance.

Sincerely,

Bradford R. Jones, CPA
Chair, VSCPA Board of Directors

LAST UPDATED 7/1/2010

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