Edward Karl, AICPA vice president–Taxation, testified at an IRS hearing Oct. 8 about proposed amendments to Circular 230 that would put into place many parts of the IRS’ plan to register and regulate tax return preparers (REG-138637-07). The proposed regulations would clarify the definition of tax practice, establish a new “registered tax return preparer” designation, define the eligibility requirements for becoming a registered tax return preparer, set tax return preparation standards, and amend the current rules covering continuing education providers.
A day earlier, the AICPA submitted a comment letter to the IRS on the proposed regulations, and Karl’s testimony reiterated many of the points made in that letter.
Nonsigning staff of CPA firms. Karl noted the AICPA’s previously expressed concerns about the breadth of the program and its recommendation that the IRS limit the applicability of the preparer tax identification number (PTIN) requirement to signing preparers and exempt nonsigning staff supervised by federally authorized tax practitioners (that is, CPAs, attorneys or enrolled agents). He again urged the IRS to exempt the nonsigning staff of CPA firms from the testing and continuing education requirements, and he said he was encouraged by the IRS’ announcement that it was still considering exempting employees of certain professional firms that would fall under the IRC § 6109 definition of tax return preparer from the testing and continuing education requirements (IR-2010-99).
In his testimony, Karl asked the IRS to also exempt student interns from the return preparer registration program. The AICPA is concerned that subjecting student interns to the additional burdens and costs of the regime would do little to further the IRS’ stated goals while deterring interest in tax accounting internships.
Continuing education. The proposed regulations would require continuing education courses to be approved by the IRS Office of Professional Responsibility. Karl expressed concerns about the volume of continuing education courses that will require IRS approval and how timely the approval process will be. The AICPA recommends that courses offered by continuing education providers that are recognized for continuing education purposes by the licensing body of any state or are on the NASBA Registry of CPE Sponsors be exempt from the approval process.
Testing. The proposed regulations sought comment on whether a tax return preparer who solely prepares tax returns other than Form 1040 series returns should be permitted to prepare those other tax returns without successfully completing any examination. Karl repeated the AICPA’s recommendation that the IRS should delay implementation of the testing regime and 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. Notwithstanding the AICPA’s overall concerns with an examination process, he indicated support for an exemption from competency testing for those tax return preparers who solely prepare returns other than Form 1040 series returns.
“Registered Tax Return Preparer.” Karl also reiterated the AICPA’s position that the term “registered tax return preparer,” which the IRS is using to describe the category of return preparers who are not CPAs, attorneys or enrolled agents, could mislead the public because the word “registered” implies a higher level of professional capability and education. The AICPA believes the term “authorized return preparer” would be more appropriate.
Other issues. Karl raised concerns about several other aspects of the proposed regulations, including:
- Inconsistencies in the definition of reckless behavior and gross incompetence in different sections of Circular 230;
- The need for a clearly defined objective test for determining what is a tax shelter; and
- The proposed expansion of the requirement that firms have adequate procedures in place to ensure compliance with Circular 230.
Finally, Karl asked that the proposed effective date of the proposed changes to firm compliance procedure requirements be pushed back—from 60 days after the regulations become final to six months after they become final—to give firms time to digest the new requirements and establish firm training and procedures to comply with them.
More from the JofA: