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Technology And The Regulation Of Tax Preparers

My father was a firm believer in higher education. When I was in high school, he was always after me to do two things. First, to become a “professional” man, and, second, to learn things that didn’t exist.

From the Dec. 2005 Issue

My father was a firm believer in higher education. When I was in high school,
he was always after me to do two things. First, to become a “professional”
man, and, second, to learn things that didn’t exist. The first one wasn’t
a problem, since I enjoyed bookkeeping and decided to become an accountant and
specialize in taxes. The second one, however, frustrated me at the time until
I realized that he was advising me to get as much education as possible and
to always think ahead.

Contrary to what our children think, computers and software weren’t
invented after they were born. I took my first computer course in high school.
And while I recognized the great potential of computers, I didn’t visualize
the way they would eventually develop into what they are today. Nor did I imagine
the impact they would have on our tax profession. Computers have become indispensable
aids and can be further utilized to enhance and protect our profession.

For years, we have worked hard to get an education to first become tax practitioners
and then to continue to maintain and increase our tax knowledge to truly become
income tax professionals (i.e., Enrolled Agents, CPAs and tax attorneys). We
have every right to be proud of what we do and to be protective of our profession.
Not protective in a way to be exclusionary, but to be proactive in support of
the licensing of the profession, maintenance of high standards and protections
for the taxpaying community. So how do we utilize computer programs to aid in
these goals?

Databases could maintain the data of practitioners eligible to prepare and/or
represent taxpayers. It’s said that you can recover from a bad haircut
in a couple of weeks, but it can be a nightmare recovering from a bad tax return.
Here in California, if someone who is not regulated by Circular 230 wants to
prepare tax returns, they must register with the California Tax Education Council
(CTEC). Barbers are licensed and regulated by the Department of Consumer Affairs,
which has more teeth than CTEC. Besides California, the State of Oregon is the
only state that also has a registration requirement through the Oregon Board
of Tax Practitioners. These are only two of the 50 states plus the territories
and U.S. possessions.

Earlier this year, U.S. Senator Jeff Bingaman from New Mexico introduced S.832,
the Taxpayer Protection and Assistance Act of 2005, which was referred to the
Committee on Finance. Among other things, the bill would regulate and test paid
income tax preparers. The point of this article is not to convince anyone about
the merits of this particular bill, but to address the need, in some form, for
regulation of paid tax preparation and representation and how the IRS can implement
its regulation of these practitioners.

Let’s say that a bill is passed that requires the registration of tax
preparers and representatives and limits the types of returns, forms and schedules
that can be prepared as well as the level of representation allowed. Preparers
will know what level of service they are authorized to provide and will be precluded
from taking on any assignment that they are not licensed to perform.

To aid in the identification of all practitioners, there would be a requirement
to obtain a PTIN (Preparer Tax Identification Number), which is now only required
if a paid preparer doesn’t want to disclose his or her Social Security
Number on returns prepared. The PTIN could be renamed the “Practitioner
Tax Identification Number” and consolidated with the Centralized Authorization
File number (CAF). The IRS Office of Professional Responsibility would maintain
a database of all practitioners (i.e., those currently regulated by Circular
230 and the new practitioners).

The public would be protected from unqualified practitioners. The IRS would
be required to educate the public about the different licensees and the level
of service they are authorized to perform. The IRS Office of Professional Responsibility
would have a web site where the public can input the contact information and
see the type of license and limitations, if any, of any practitioner.

It would not be difficult to monitor and enforce the acceptance of tax returns
from qualified practitioners. Many tax practitioners are already electronically
filing their clients’ income tax returns, and most will in the near future
with Congress’ mandate of 80 percent e-filing by 2007. During the e-file
validation processing, the IRS e-file processing centers could interface with
the IRS Office of Professional Responsibility’s database and reject any
return the preparer is not authorized to prepare.

By preventing them from charging fees for assignments they are not qualified
to perform, unqualified practitioners will be forced to turn away any assignment
they are not authorized to perform. Not only would they be avoiding a waste
of their time, they would avoid the assessment of penalties for intentionally
disregarding the law.

Under former IRS Commissioner Mark W. Everson, the IRS overhauled its computer
system. Let’s put it to good use to maintain the integrity of our profession
for the benefit of the public as well as ourselves. The public deserves the
protection, and we deserve to remain proud of who we are. I know our fathers
would definitely be proud!


Norman M. Golden, EA, has been in public taxation since obtaining his Bachelor’s
degree in Business Administration from San Francisco State University in 1979.
He has his own tax practice in Foster City, Calif. And is currently the President
of the California Society of Enrolled Agents and can be reached at