TAP G04-058

Preparer Licensing

Statement of Issue:

Taxpayers, who may have little knowledge of tax preparation, are deluged with choices of tax preparers who are not regulated and are not required to demonstrate the minimum competency to prepare tax returns. At this time, there is no requirement for licensing or certification process for tax preparers. Tax preparers are not subject to any rules or standards of conduct and are not required to participate in continuing education programs. There is very little federal regulation. Tax preparers who prepare returns for a fee that fail to comply with certain requirements such as signing a return or failing to provide a copy to the taxpayer could be assessed a penalty. A penalty could also be assessed if a tax preparer knowingly disregards Treasury or IRS rules and regulations such as preparing a return that they know or should have known is wrong. In reality, very few penalties are assessed and, of those, a small fraction is actually collected

Proposal:

Rather than create a new level of bureaucracy (testing, certification, etc.), the federal tax system should rely on the private sector to encourage, require and supervise a system of continuing professional education. There are a number of national tax associations (NSTP, NATP, NSA and NAEA) that would be in a position to provide the foundation for establishing a system for measuring competence. Such a system would be easy to monitor with each of the national associations assuming direct responsibility for providing standards and procedures for registering and certifying all tax preparers. The IRS would designate the VITA exam as the basic testing mechanism for the Federal Tax Return Preparer (FTRP), and the IRS would be authorized to impose a per return penalty for failure to register. Current preparers would be grandfathered into the program by submitting an application subject to approval by the IRS.

For future tier licensing the IRS would develop a series of examinations designed to test technical knowledge and competency of unenrolled return preparers