A closer look at paid tax preparer regulation

In a letter to the IRS, the AICPA recently offered recommendations on six key areas of regulation of paid tax return preparers. A senior manager on the AICPA’s Tax Policy & Advocacy Team explains more about why the recommendations are needed.

Also, learn more about a recent popular article on delivering and receiving feedback.

What you’ll learn from this episode:

• Why it’s important for the IRS to address the issue of unregulated tax return preparers.
• Insight into preparer tax identification numbers (PTINs) and IRS authority over them.
• Why the current process to revoke a PTIN can be “time-consuming and costly.”
• An explanation of supervised, nonsigning return preparers.
• More on a recent JofA article about delivering and receiving feedback.
• News on the issuance of nonauthoritative guidance for auditing digital assets, and economic trends to watch.

Play the episode below or read the edited transcript:

To comment on this episode or to suggest an idea for another episode, contact Neil Amato, an FM magazine senior editor, at Neil.Amato@aicpa-cima.com.

Transcript:

Neil Amato: Welcome to the Journal of Accountancy podcast. This is senior editor Neil Amato. The AICPA sent a letter to the IRS recently about regulation of tax preparers who are currently unregulated. Here to explain more about the issue and why it matters, is Melanie Lauridsen, AICPA’s senior manager of Tax Policy & Advocacy. Melanie, why first is it important for the IRS to address the issue of unregulated return preparers?

Melanie Lauridsen: Well, thanks, Neil. Let me start by saying that the AICPA has always encouraged an approach that elevates the ethical conduct of the preparer community. As you are probably aware, we have our own Code of Professional Conduct, along with abiding by the IRS’s Code also, so it is a very important topic, not just for us but for all taxpayers that are involved. Let me also say that really what we’re trying to achieve and what we’re trying to do with this proposed comment letter that you brought up is really to bring and raise a minimum level of competency of all preparers across the system, which by doing so, it will help the system and therefore it will help the taxpayers.

Now, I should also say that TIGTA [the Treasury Inspector General for Tax Administration] and the GAO [U.S. Government Accountability Office] have had reports that have come out that have addressed the unregulated return preparers, and they all implicate the unlicensed preparers. Now, the unlicensed preparers, they make up over a half a million people who are out there. So, the whole point of the regulation of tax return preparers is the concept to let the IRS regulate these people, those unlicensed ones. Now, I should also say that CPAs, [enrolled agents], and attorneys are already regulated by either boards of accountancy or state boards, so it doesn’t mean that they aren’t subject to regulations, but they really are already subject to way more regulation than is already needed, and more so than what the IRS is focusing on. So our approach is to really let the IRS focus where regulation is the most needed, and it is for those unregulated or unlicensed return preparers.

Now, the IRS can’t over-regulate people because, if they do, there wouldn’t be sufficient preparers out there in the preparer community, and we need people that are out there that do prepare the returns, but they also can’t not regulate them. So really it comes down to finding that sweet spot of regulation between not over-regulating them but also regulating them sufficiently.

Amato: Does the IRS have any authority now to revoke a PTIN — and obviously you will define PTIN for the audience — or otherwise discipline incompetent or unscrupulous return preparers?

Lauridsen: Sure. So the PTIN is an identifying number for people who prepare tax returns, and, right now, if you prepare a tax return for compensation, for any amount of compensation, you are required under the law to get a PTIN. That’s just your identifying number. When you prepare the tax return, you put that identifying number at the bottom of the return. So that’s what the PTIN is. So your question comes back to, “Does the IRS have the authority to revoke a PTIN?” And really, at this moment, no, it’s just as simple as no.

If the IRS wants to take action against someone who has a PTIN, they have to go through this injunction process, which means they have to really go through getting an approval from the Department of Justice, which is very time-consuming and very costly. So what’s happening is we are seeing the most egregious of those preparers who are coming in and being, going through this whole process, which once again I can’t stress enough, it takes a really long time, and it is extremely costly for the IRS to go through this process, so because of that, it really takes away the authority from the IRS.

So, we believe that the IRS should be empowered to revoke a PTIN without having to go through that process. So if they see a person who has a PTIN who is consistently doing things that really they shouldn’t be doing, then the IRS should have the authority to revoke it. And let me give a quick example with regards to what that authority would look like.

There was a case with a lawyer, where he kept doing things that were not appropriate on tax returns. And essentially, they went through this whole process, this injunction process, they went through the Department of Justice, and they barred him from representing the taxpayers, right, before the IRS, but they didn’t have the authority to actually keep him from preparing tax returns. So even though he went through this whole process, the IRS still couldn’t regulate him because they don’t have the authority to regulate tax return preparers, and this particular person continued preparing tax returns.

Amato: That’s a good example. The AICPA has asked for an exception to the PTIN requirement for supervised nonsigning return preparers. What’s the thinking behind that request?

Lauridsen: Sure. A couple of things, and let me start off by saying that, as I said, the IRS really should focus on regulating and focus on the unlicensed preparers. And let me stress again that CPAs, EAs, and attorneys, they’re held to a really high bar of regulation, and there are definitely discipline actions that can come down for CPAs, EAs, and attorneys.

So, when the IRS first looked at this, they are trying to pretty much regulate CPAs like everyone else. And that’s just not appropriate, because we’re held to a higher standard above everyone else, and we have other discipline measures that are in place for us if we do things fraudulently. So that’s the first thing that I should say. The other piece of it is let me define what a supervised nonsigning return preparer is, because there is a very specific definition for it. So essentially, if someone is preparing a tax return under the supervision of a CPA, EA, or attorney that also works for a firm owned by a CPA, EA, or attorney, then that person is considered a supervised nonsigning, return preparer. So they’re helping prepare the return, but they’re not the one signing.

Now what this goes to the issue of, it goes to, like, as I mentioned, the GAO and TIGTA studies where they were really referencing unlicensed people, but in the case of these supervised preparers and employees, they’re already under the jurisdiction of a CPA, and if there is poor behavior or poor quality of that return, it doesn’t matter if the CPA didn’t do the work, the CPA didn’t properly supervise, and that CPA and the firm will be properly disciplined. So, in other words, the system is already protected and, if you think about it a little bit further, asking them to get a PTIN, what does that do? The IRS can’t even track them right now. It really is just something the IRS is asking for, but there is absolutely no benefit for the system for the taxpayers, for the preparers, for anybody involved in the system.

And really what it comes down to for these supervised nonsigners, it’s just an additional cost. There’s an additional administrative overhead cost associated with this, some burden. So, for example, if you’re an intern in the process of getting your CPA, you could bounce around working for different CPA firms and if you get your PTIN, how do you account for that in the system? How do you register for that PTIN? Or if you move around consistently, it just creates an additional burden, when at the end of the day, there is no benefit.

And some people say, well, having the PTIN system helps the whole unlicensed situation, which I agree it does help some, but at the end of the day, having a PTIN isn’t going to make them a good apple, and the system isn’t going to force them to do what’s right. And that’s what we’re looking at, the unlicensed preparers. And there really is no benefit to having supervised nonsigners.

Amato: Melanie, thank you for the insight on this important topic. Anything to add in closing?

Lauridsen: No, I think that captures it. It really does, in a nutshell, what we’re trying to achieve. Once again, I can’t stress enough that we definitely encourage the elevated ethical conduct of the preparer community, and we are very supportive of this. So we hope this gets on the right track and moves forward.

Amato: We will link to the Journal of Accountancy article about this topic in the show notes for the episode. Melanie, again, thanks very much.

Lauridsen: Thank you, Neil.

Amato: Giving or receiving feedback: When you hear those words, what comes to mind? For some, there’s a very natural and negative connotation, as the receiver of the feedback may fear being criticized or not living up to an expectation. The giver may be anxious if the message being delivered isn’t going to be all positive.

Freelance writer Cheryl Meyer has an article on feedback published recently on the Journal of Accountancy website. You can find a link in this episode’s show notes or by visiting the site and searching “feedback.” Delivery of feedback has changed for many of us over the past 15 months, as more of it is given and received through a computer instead of in person, and there are good reminders on delivery and reception of feedback from a CPA speaker at the upcoming AICPA & CIMA ENGAGE 2021.

In other news, AICPA and CIMA released additional nonauthoritative guidance addressing the auditing of digital assets such as bitcoin and ether. The material covers topics such as regulation and legal issues, risk assessment; processes and controls; and more.

Also, editorial director Ken Tysiac writes about 5 trends to watch in the pandemic economic recovery. He’s quoting recent AICPA governing Council speaker Marci Rossell, an economic forecaster who previously was the chief economist at CNBC.

And speaking of trends and the outlook on the economy, on next week’s podcast and on the news pages of journalofaccountancy.com, we’ll have coverage of the quarterly Business and Industry Economic Outlook Survey. It asks finance decision-makers to look forward at the next 12 months and project how they think things will go for their businesses and the economy overall.

Please visit the Journal of Accountancy website for more news, and thank you for tuning in to the Journal of Accountancy podcast.