“Tell the truth and then run.”
- Proverb -
Anyone who reads this blog regularly will know that there has been a rather heated ongoing debate over the relative qualifications of unenrolled tax preparers, CPAs and IRS Enrolled Agents.
About a week ago I stated what I thought was an uncontroversial position:
Let’s face it, the term “unenrolled preparer” is not a designation at all, but, rather, a phrase used to describe someone who lacks a designation. It’s a euphemism used to describe someone who is void of credentials and who is not held to any set of professional standards.
- Prepare a single tax return for someone other than yourself; and
- Not be a duly-licensed CPA, lawyer or IRS Enrolled Agent.
If both of the above are true, congratulations my friend because you are an unenrolled tax preparer.
And what’s even better, you will not have to prove anything else to anyone, anywhere at anytime.
Ever!
Now, whether you happen to like it or dislike it, these are the facts and they are patently obvious to the great majority of currently regulated preparers, unbiased unenrolled preparers and, most importantly, the IRS itself.
I later made the following assertions:
Well, break out the old Rack and Screw because some of our more sensitive types have taken great offense to these utterances and have deemed them to be evidence of my wickedness.
In the past two weeks I have been called by two unlicensed tax preparers the following names:
I think it’s very telling that no similar attempts to insult me have been made by an IRS Enrolled Agent, CPA, or lawyer (several disagree with me about the regulation of unenrolled tax preparers), nor have I been the subject of a single ad hominem attack by a commenter other than the two individuals referenced above.
There is a very old saw that says when the law is against you, argue the facts and when the facts are against you, argue the law.
I would add to that, “and when the law and facts are against you, personally attack your opponent.”
It’s a maxim of debate that when your opponent resorts to calling you a triple-redundant name like “pompous arrogant ass” he has lost the debate.
It’s the equivalent of a 9 year old who, seeing that he is about to lose at Checkers, angrily flips the board over.
Had my conclusions been inaccurate or unfounded, the childish insults would not have ensued.
Blogging observation: This frisky debate has given me a big spike in traffic and has increased the comments left on my site three-fold. I would be willing to wager that the two unenrolled preparer bloggers I refer to above also have experienced a nice little jump in traffic. Obviously there is value in controversy, passion, courage of conviction and, I’m afraid to say, ticking some folks off.
19 responses so far ↓
1 Mary // Jul 12, 2009 at 5:34 pm
You might want to adjust the wording of your two-part definition above since it’s a bit overbroad.
As written, your designation of “unenrolled preparer” would apply to someone preparing a tax return for his minor child or for a disabled relative for whom he has power of attorney.
Your definition would also apply to most Taxpayer Assistance Center IRS employees, since few of them are EAs, CPAs, or attorneys. But these employees are all certified through the same exams that VITA and AARP volunteer preparers take each and every year. Those volunteer preparers of course would also be unenrolled preparers according to your definition above. That’s kind of ironic, because as far as I can tell, TAC employees along with VITA and AARP volunteers are the ONLY tax preparers who are required to take annual recertification exams on current year tax law before preparing returns. They also sign annual agreements to respect taxpayer confidentiality, to limit their practice to returns within the scope of their certification, and promising not to solicit or accept any payment from the taxpayers they serve. Moreover, such volunteers serve under the supervision of a site coordinator who has given his/her fingerprints and other identifying personal information to the IRS. They are required to report the locations and hours of their practice and they are also subject to routine visits from the IRS, including unannounced secret shopper visits.
Enrolled agents take a one-time exam based on the PREVIOUS year’s tax law, rather than the CURRENT year’s tax law. After that, they have continuing education requirements, but apparently they don’t ever have to take another test, unlike the VITA and AARP volunteer preparers who take annual tests on current law.
When the IRS talks about the need to regulate “unenrolled preparers,” I don’t believe they are talking about any of the above cases.
I’d suggest you add condition #3 below so your definition reads:
1. Prepare a single tax return for someone other than yourself; and
2. Not be a duly-licensed CPA, lawyer or IRS Enrolled Agent, and
3. Accept payment from the taxpayer for preparing the return.
2 Peter // Jul 12, 2009 at 8:00 pm
Mary,
That’s kind of my point.
Unenrolled preparer isn’t a status. It comprises “everyone else.”
And there is no category called “unenrolled unenrolled preparer.”
3 Mary // Jul 12, 2009 at 9:46 pm
In your previous post at http://blog.pappastax.com/index.php/2009/07/01/taxpayer-advocate-scolds-unenrolled-preparers-favors-regulation/ you appeared to be using the terms “unenrolled preparers” and “unregulated preparers” as if they were synonymous.
I think your previous post was the source of my confusion.
Your headline for that earlier post made the sweeping statement that Nina Olson was “scolding unenrolled preparers,” when the text in the body of your post stated only that she was only calling for greater regulations on “unregulated commercial preparers.”
She was CERTAINLY not scolding or calling for greater regulation of parents for preparing returns for their minor children, nor of people with power of attorney for preparing returns for their disabled relatives. She was also not scolding or calling for greater regulation of IRS Taxpayer Assistance Center employees for preparing returns for eligible taxpayers. She was not scolding or calling for greater regulation of VITA and AARP return preparers.
By the way, if you are going to assert that parents are “unenrolled preparers” when they prepare a tax return for their minor children, why isn’t a taxpayer an “unenrolled preparer” when he prepares his own return?
4 Peter // Jul 12, 2009 at 11:47 pm
IRS Publication 947 defines the term “unenrolled return preparer” as follows:
I see in that definition no exception for a parent who prepares a child’s return, for VITA and AARP preparers or for IRS Taxpayer Assistance Center Preparers.
Perhaps the new regulatory regime won’t apply to these types of preparers, but they are, at least for now, considered to be unenrolled preparers.
5 Mary // Jul 13, 2009 at 10:00 am
Thanks for the official definition.
Depending on how you parse this definition, you could interpret the IRS Pub 947 definition to exclude VITA, AARP, and IRS TAC employees from the category of “unenrolled preparers.”
We do not sign the return “as preparers” of the return, because we are not accepting compensation from the taxpayer. So we do not sign the return in the preparer field and we do not meet the criterion in the first clause of the Pub 947 definition.
Assuming the return is an efile, we don’t meet the criterion in the second clause either, because the instructions DO require us to sign the return as the ERO (electronic return originator) of the return.
Signing as the ERO is not the same thing as signing “as the preparer” since EROs can efile returns they didn’t prepare themselves.
So, technically, VITA and AARP volunteers, and IRS TAC employees who limit themselves to efiled returns, as many do, would not meet the IRS Pub 947 defintion you gave above.
An extremely high percentage of VITA and IRS TAC returns are e-files, so many VITA volunteers and IRS TAC employees would not be considered “unenrolled preparers” under the IRS Pub 947 definition above.
Some AARP volunteers do not do e-files at all (because they prefer the traditional paper way), so they would be “unenrolled preparers” under the Pub 947 definition above.
6 Mary // Jul 13, 2009 at 10:17 am
By an analogous similar parsing of the 947 regs, a parent preparing and filing a return for a minor child would also not be an “unenrolled preparer.” (In his case, this would be true whether the return was paper or efile.)
Assuming he is not accepting compensation from the child for preparing the return, he does not sign on the preparer line, so he fails the test in clause 1. He also fails the test in clause 2, because the instruction DO require him to sign the return in the taxpayer field in his capacity as parent filing on behalf of the child.
The same reasoning means that an individual preparing and filing a return for a disabled relative for whom he has POA does not meet the “unenrolled preparer” pub 947 definition. Assuming he doesn’t accept pay for preparing the return, he fails to meet clause 1, because he shouldn’t sign in the preparer field. He also fails to meet clause 2, because he IS required to sign the return in the taxpayer field as the person filing the return with POA on behalf of the taxpayer.
7 Peter // Jul 13, 2009 at 11:50 am
They are all unenrolled and, therefore, unenrolled preparers.
8 Mary // Jul 13, 2009 at 12:54 pm
By your solipsistic definition an individual preparing his own return is also an “unenrolled preparer.”
In fact, if you care to go on to read the rest of the page you quoted from Pub 947, the IRS makes clear in the following column that parents preparing returns for minor children and (close) relatives preparing returns with a POA fall under an entirely separate category that the IRS “Other Unenrolled Individuals.” That same category also includes an individual who prepares his own return.
The IRS gives greater powers to “Other Unenrolled Individuals” than to “Unenrolled Preparers.”
I believe that VITA, AARP, and IRS TAC employees who prepare returns fall into still another category, which is alluded to on page 4 of Pub 976 as individuals not normally allowed to represent taxpayers before the IRS under any but the most extraordinary and compelling circumstances.
The definition of “unenrolled preparer” on page 3 of Pub 976 is definitely not a catch-all “everyone else falls into this category,” as you suggest. People who come under the Pub 976 page 3 definition of “unenrolled preparer” that you cited above actually have some narrowly circumscribed ability to represent taxpayers in certain types of IRS proceedings.
But all this solipsism is silly. The point is that your usage of the term “unenrolled” and “unregulated” as if they were synonymous is leading to confusion.
Enrollment is a term defined to allow certain kinds of practitioners to represent taxpayers before the IRS.
The appropriate credentials for representing taxpayers before the IRS are not necessary identical to the appropriate credentials for preparing returns.
I think this entire line of argument is getting problematic.
The problem Nina Olson is highlighting is NOT “unenrolled preparers,” it is “unregulated commercial preparers.”
Enrollment is a technical term that has to do with an individual’s suitability to represent a taxpayer before the IRS.
She is not calling for “enrolling” more preparers to represent taxpayers before the IRS, she is calling for “regulating” more preparers so they will do a better job of preparing returns.
And the preparers she is calling for regulating are the unregulated commercial preparers.
There is a lot of overlap between “unregulated commercial preparers” and “unenrolled preparers,” depending on how you parse the definitions, but I don’t think it’s helpful to use two terms as if they were identical.
9 Peter // Jul 13, 2009 at 1:56 pm
Mary,
I respectfully disagree.
I think the IRS definition of unenrolled preparer is clear and unambiguous.
I am sorry that you don’t like the definition.
Perhaps you should write your Congressman to get it changed.
You seem to have difficulty with definitions because you are also using the word “solipsism” incorrectly.
Here is the Dictionary.com definition:
And if anyone is indulging their own feelings, desires and egoistic self-absorption it is those who refuse to accept a clear definition of a term simply because they perceive it to adversely affect them.
10 Mary // Jul 13, 2009 at 5:53 pm
As a volunteer return preparer already subject to a great deal of regulation, I do not perceive the Pub 976 definition of “unenrolled preparer” to adversely affect me, since that Pub 976 definition is made in the context and for the purpose of circumscribing who can represent a taxpayer in an IRS examination.
I signed on as a volunteer preparer in order to help taxpayers file accurate returns, but I have no desire to represent them in an IRS examination. In the infrequent but occasional case that one of our taxpayers is audited, we refer them to attorneys who volunteer in a nearby clinic for low-income taxpayers, and we would answer any questions that the taxpayer or the volunteer attorney had for us about how the return was prepared.
If I were a parent preparing and filing for a minor child or if I had POA for a disabled relative, I would consider myself adversely affected if the IRS insisted that I was an “unenrolled preparer” and therefore circumscribed in my ability to represent my child. However, if you read the entire page of Pub 976 from which you quoted only a brief excerpt, you would see that a parent filing a return for a minor child or a person with POA for a close relative does not fall under the category of “unenrolled preparer,” but rather falls under a separate category of “other unenrolled individuals,” and people in that separate category have greater powers than “unenrolled preparers.”
I do not have minor children and I do not have POA for any disabled children, so I do not perceive myself to be personally adversely affected by the way such people are categorized.
However, I do assist taxpayers who DO have minor children and other taxpayers who DO have POA for disabled close relatives. They would be adversely affected if they were considered “unenrolled preparers” and therefore circumscribed in their ability to deal with the IRS on behalf of their minor child or disabled relative. But I truly don’t think they are circumscribed in that way. I think that Pub 976 makes very clear that parents who prepare returns for their minor children and close relatives with POA are in a completely different category from “unenrolled preparer.” Pub 976 makes clear that such individuals have exactly the same right to appear at an audit as the taxpayer himself, which is not true of “unenrolled preparers.”
On another note, I did want to say that I’m sorry other people have been calling you insulting names. I think name-calling is completely uncalled for. I also agree that I was incorrect and not as careful as I should have been in my usage of the word solipsistic.
If you still insist on your broad definition of “unenrolled preparers,” however, it would be nice if your previous post’s headline made clear that Nina Olson was specifically scolding ONLY “unregulated commercial preparers,” rather than everyone in the world other than CPAs, attorneys, and enrolled agents.
11 Peter // Jul 13, 2009 at 6:53 pm
Mary,
No apologies necessary.
I don’t mind a little fisticuffs every now and then.
As for the name-calling, I think it says more about the name-callers than it does about the name-callee.
12 Charles C. // Jul 14, 2009 at 3:19 pm
Boy, pretty much look at the recruitment of tax return preparers of Liberty Tax, H&R Block and Jackson Hewitt if you want to get an appraisal of the bottom feeders of the industry. They are taught to plug w-2;s into software, ….. Hewitt calls theirs “Profiler” …. push GO, get reams of paper, lots of signatures and 40% of the refund in fees. Trained monkeys. working for $8 an hour.
How is this an act of a Professional in any stretch of the imagination? If the IRS eliminates the theft racket of those three from the industry – yes, …. proper, professional individuals would step up to participate.
13 Peter // Jul 14, 2009 at 3:47 pm
Charles,
I agree.
Unenrolled preparers, the whole lot of ‘em.
14 Mary // Jul 14, 2009 at 11:29 pm
I can’t resist pointing out that even “enrolled practitioner” status is not enough by itself to qualify a preparer to prepare tax returns at a VITA site.
CPAs, attorneys, and enrolled agents must all take an additional IRS certification test each and every year, if they want to assist taxpayers at VITA sites.
An anecdote from the National Taxpayer Advocate’s Taxpayer Advocacy Panel makes that clear:
Swartz indicated that his VITA site was reviewed and the reviewer’s concern was the fact that one of their volunteers had not taken the required test for certification. He explained that this particular volunteer is a 20-year IRS Revenue Agent and he is very knowledgeable on taxation since he does this for a living.
Burton indicated that SPEC [the part of the IRS that runs the VITA program] is very strict on the certification requirement being met by each volunteer. This includes volunteers who might be CPAs, tax attorneys or other tax professionals. There are no exceptions to the certification requirements for anyone.
Source:
http://www.improveirs.org/minutes/vita/2009/20090414.shtml
“Enrollment” status for a tax professional technically only means that the IRS accepts his credentials are appropriate to represent taxpayers in various IRS proceedings. It does not mean that the IRS accepts his credentials as sufficient for preparing tax returns for low-income working families at VITA sites.
15 Mary // Jul 15, 2009 at 12:34 am
I should also hasten to point out that there is certainly room for improvement among VITA site preparers as well. Their accuracy rates have improved greatly in recent years, and their accuracy rates are now well above the unregulated commercial preparers, but they still need further improvement. Our VITA site uses a triple check quality review process which goes well beyond IRS requirements, because accuracy is so important to us. This is very time-consuming, but very worthwhile because our taxpayers face many economic challenges in their lives–they come to us because they want their returns done correctly.
At our site, one IRS-certified VITA preparer does the return, another VITA certified preparer does an independent quality review of the return using the taxpayer’s source documents and asking the taxpayer any questions to clarify issues, then the original tax preparer walks the taxpayer line by line through his return explaining the meaning of each and every item on the return to the taxpayer and making sure that the taxpayer understands where each of the numbers on the return came from before asking him to sign the return to authorize us to e-file. Then I (the site supervisor) go home, get a good night’s sleep, drink a strong cup of coffee in the morning and look over the return and the source documents carefully to do a final quality review one last time before submitting the efile. If necessary, I will call the taxpayer for additional information or will call our IRS relationship manager for assistance with especially complicated issues before submitting the efile.
Our VITA site has had great training and support from fantastic IRS relationship managers (most of whom are former auditors with many years of experience and all of whom annually certify on the same tests we take.) They really want to do everything they can to help our taxpayers get their returns done correctly in the first place, so they won’t face difficulties down the road.
Additional regulations on all types of preparers would be a good idea, in my opinion.
There is, however, a lot that Congress could do to make it easier for more taxpayers and tax preparers to prepare accurate returns–they could listen to some of Nina Olson’s other advice–and simplify the tax code. No matter how many preparer regulations are put into place, the millions of words in the tax code and tax regulations combined (which change annually and grow more complex each year) cause far too many resources to be wasted in the process of complying with the tax law.
16 Peter // Jul 15, 2009 at 4:27 am
Mary,
You are providing a much needed service and I commend you for it.
I am also happy to see that the IRS doesn’t just permit anyone to participate in a VITA or TCE program.
Unenrolled preparers who are not participating in a VITA or TCE program do not have to demonstrate any base level of competency, either in mathematics, reading comprehension or tax law.
Consequently, it is now possible for an individual who cannot do simple multiplication to accept a fee for the preparation of a taxpayer’s tax return.
All that is required to be an unenrolled preparer is to declare yourself one.
Finally, I do believe VITA and TCE preparers are subject to the limitations placed on unenrolled preparers in general.
17 Mary // Jul 15, 2009 at 8:15 am
Finally, I do believe VITA and TCE preparers are subject to the limitations placed on unenrolled preparers in general.
VITA and TCE preparers all sign agreements with the IRS promising only to act within the scope of their certification.
Some CPAs, attorneys, and EAs do volunteer as VITA and TCE volunteer preparers and so they have enrollment credentials in addition to their VITA certification which means they can represent taxpayers before the IRS.
The rest of us do not have enrollment status, and I completely agree with you that we have no more powers to represent taxpayers in IRS audits and other proceedings than unenrolled preparers in general.
If anything, I believe our powers are even more circumscribed and limited than unenrolled preparers in general, because unlike them, we have signed contracts with the IRS promising to restrict our practice within the limits of our certification.
Consequently, it is now possible for an individual who cannot do simple multiplication to accept a fee for the preparation of a taxpayer’s tax return.
And even worse, nothing in current federal law prohibits criminals with a string of convictions from setting themselves up in a business as paid tax preparers. The potential for fraud and identity theft is a serious problem since preparers routinely have access to SSNs, bank and brokerage account numbers, credit card numbers, etc.
18 Mary // Jul 15, 2009 at 9:28 am
Here are my bottom line thoughts. You wrote above:
Advising taxpayers to seek out the services of an unenrolled preparer over a regulated CPA preparer is dangerous, reckless and a disservice to taxpayers.
If the taxpayer is a low-income individual with simple financial circumstances that qualify for VITA services, I do not think it is dangerous, reckless, or a disservice to the taxpayer to recommend that s/he use the services of a free VITA site with IRS trained and certified VITA volunteers (which, after all specializes in his particular type of return) even if the preparers at the site do not have enrolled status to practice before the IRS, rather to pay a substantial fee to a CPA.
Some CPAs do have a special interest in serving low-income taxpayers and therefore make special efforts to stay up-to-date on the specific and often surprisingly complex provisions of the tax law that affect low-income individuals, but not all do. That’s why the IRS insists that even CPAs must take the VITA certification test each and every year if they want to assist taxpayers at a VITA site.
The IRS strongly encourages VITA site coordinators to work closely with public and non-profit agencies, and we have contacts at those agencies that can help taxpayers find the answers to tax-related questions that a typical CPA may not be able to answer. (For example, how will the receipt of a large tax refund affect eligibility for different kinds of public assistance programs, each of which can have slightly different types of eligibility rules. Typical CPAs do not deal with such questions very often and may not know who to call at the County Department of Social Services to get the answer to the taxpayer’s questions.)
19 Peter // Jul 15, 2009 at 4:57 pm
Mary,
Good points all.
Regulation of currently unenrolled preparers will be the best thing that could happen to the competent preparers and the worse thing that could happen to the incompetent ones.
And that is precisely what we want.
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