For the last 100 years or so of U.S. taxation, there has been absolutely no regulation of tax preparers in most of the United States (about 48 states). This has been an easy field to enter, requiring no minimum education, no minimum training, and no licensing whatsoever.
Literally, anyone at all could open up shop one day and prepare tax returns without having a clue about tax law or procedure, collect fees from clients, and then disappear after tax season. And they did.
That kind of operation gave a bad name to the legitimate, trained tax professionals who did an excellent job, year-after-year. Worse, those fly-by-night outfits were competition for the legitimate tax pros. Since they could generate high refunds for low fees, you were losing clients to these guys.
You couldn’t compete because you were doing an honest job preparing your tax returns – and couldn’t even figure out – what do those guys know about tax law that I don’t? Nothing.
In fact, what many of these places did was just make up deductions and credits to use on tax returns to generate refundable credits. Since you weren’t making up information, you couldn’t get the same results for your clients.
Traveling around the country, seeing this kind of fraud, disturbed Nina Olson, the National Taxpayer Advocate, so much, that she started a campaign to end this practice. In her reports to Congress, over a span of several years, Olson advocated regulating tax professionals and setting minimum standards and continuing education requirements.
The IRS put the word out to the tax professional community to see what our reaction was. And it was mixed.
Some of us embraced the idea – especially those people in a position to see how many people were not keeping up.
Others, especially those who had been in business for decades, were offended and incensed. Why should they have to test on something they’ve been doing well for years? Besides, who can remember the last time we’ve even taken a test – much less a computerized test?
After hearing from everyone, the IRS decided regulation was needed. There was a crucial need for a minimum level of competency – and an annual education requirement. (They almost applied this testing requirements to CPAs – because they don’t have a minimum requirement for continuing education in taxation.)
Testing – The test has been developed as an open book test.
- Anyone who has been doing a competent job as a tax professional, and staying up to date on tax laws, should be able to pass.
- Except for one little twist. A big part of them exam is on Professional Ethics and Standards. It’s based on a publication the average tax preparer has probably never even seen before – Circular 230. And this book is not ‘open’ during the exam.
- You must pass this exam no later than 12/31/13 in order to stay in business. You will not be permitted to efile or sign tax returns as of 01/01/14 if you are not an RTRP, EA, CPA or attorney.
Education – All RTRPs must complete 15 hours of tax education each and every year. This applies to provisional PTIN holders currently – even if you haven’t passed the exam yet.
- This isn’t as hard to achieve as you might expect. It’s barely more than an hour per month. (Even if you only take classes in the 8 months outside of tax season, that’s less than 2 hours per month.)
- Breakdown – 2 hours of ethics, 3 hours of federal tax updates, 10 hours of federal tax education. (Note: extra hours of federal tax updates can be applied towards the 10 hours of federal tax education.)
This is going to be a good thing for the whole industry. It’s going to eliminate your unethical competition down the block. You’ll be better prepared to do your job. And, along the way, you might even learn how to streamline your own tax practice, be more efficient, offer more services – and increase your profits.
Guest blogger: Eva Rosenberg, Tax Mama