By Stacie Clifford Kitts, CPA
The Wandering Tax Pro (aka Robert D Flach) has a great post that you should check out. In After thoughts Part I, Robert sings the praises of the Vita program while addressing a prior post centered on whether tax preparers should be registered and licensed. I actually have some strong feelings about the topic, so I am going to jump right into it.
Here is a little background for those readers who may not be familiar with the debate: The IRS is seeking proposals on how to advance tax preparer performance by implementing consistent standards. You can read more about this over at The Business Perspective.
So on with my argument: I have picked up many returns where I wished that the preparer had been required to take a proficiency test prior to touching the tax forms.
Case in point, how about a partnership return (Form 1065) prepared by an attorney for a single member LLC. The client and the attorney were actually perplexed as to why the IRS was sending out “what the heck are you doing letters.”
Alternatively, how about the Enrolled Agent who filed a first year C Corporation return (Form 1120) for an LLC because she thought LLC meant Limited liability Corporation.
No kidding!
Yes, I have to say, I think it is a good idea to require tax preparers to prove their competency before they are allowed to charge a fee for the preparation of a tax return. Although I believe the proposed regulations are targeted more toward persons who are not CPAs, lawyers, or EA’s, it is obvious from what I have described that a proficiency test is needed for everyone preparing tax returns.
As a CPA, I am familiar with regulation, as I am required to keep my license up to date by taking 80 hours of continuing education every two years. I have no problem with taking a proficiency exam. If I am unable to pass it, well then I should not be preparing tax returns. The tax profession is not stagnate; laws are constantly changing. Just because someone could accurately prepare a return last year, does not mean he or she understands the rules this year.
And, for those prepares out there who are not familiar with the federal filing requirements of an LLC, here are some clues: Unless you elect to be taxed differently under the check the box rules by filing Form 8832 Entity Classification Election, owners of single member LLC’s file a schedule C along with their individual income tax return Form 1040. LLC’s with two or more member file a partnership return Form 1065.
Stacie's Tax Stuff 
SCK-We agree on the basic concept.However, do you feel, like Mary, that there should be an annual proficiency test – or that one initial exam, like the EA exam or the CPA exam, is sufficient?And what is your opinion on my plan for "grandfathering" long-time tax pros with proven recent CPE?TWTP
In my years preparing returns and seeing some real poorly prepared returns by those “in the know”, I have to say that the EA who filed the 1120 for an LLC has to be the scariest. An EA has to take a test to become an EA. So, to have past that test and have the idea that an 1120 should be filed for an LLC has room on my shelf for concern. Honestly, that is scary. I am with you in that everyone should be taking proficiency exams. (Hopefully a better assessment test then the EA mentioned above had taken.) But in my case with 20 plus years, preparing, 11 of that professionally, more so one who has been preparing for 35 plus years and all those in that line, should be somewhat grandfathered in or something there a-bouts. With that, a yearly amount of CPE should be in the taxation area. As a former CPA the requirements in the CPE department aren’t so much in taxation as they should be for licensed preparers. Of course I would also hold that in the roll of licensed preparer the CPE should have a few accounting requirements along with ethics. The regulation is coming, of that I have no doubt. As to how poorly it is done is something that we’ll have to wait and see. I for one am anxious for the ride as it is sure to be one that could be classified as a “E” ticket from DL.
In my years preparing returns and seeing some real poorly prepared returns by those “in the know”, I have to say that the EA who filed the 1120 for an LLC has to be the scariest. An EA has to take a test to become an EA. So, to have past that test and have the idea that an 1120 should be filed for an LLC has room on my shelf for concern. Honestly, that is scary. I am with you in that everyone should be taking proficiency exams. (Hopefully a better assessment test then the EA mentioned above had taken.) But in my case with 20 plus years, preparing, 11 of that professionally, more so one who has been preparing for 35 plus years and all those in that line, should be somewhat grandfathered in or something there a-bouts. With that, a yearly amount of CPE should be in the taxation area. As a former CPA the requirements in the CPE department aren’t so much in taxation as they should be for licensed preparers. Of course I would also hold that in the roll of licensed preparer the CPE should have a few accounting requirements along with ethics. The regulation is coming, of that I have no doubt. As to how poorly it is done is something that we’ll have to wait and see. I for one am anxious for the ride as it is sure to be one that could be classified as a “E” ticket from DL.
HiThanks for your comments.I think that continuing professional education (CPE) which also requires a testing process would be sufficient, if not annually, at least every two years. I believe testing is necessary because there are too many people who do not take CPE seriously. I personally like CPE which requires you to pass a test at the end to prove you actually learned something. Without a doubt, unlicensed preparers should be subject to an initial licensure test. As I have stated in my post, the tax laws are continually changing, knowing how to prepare a return in one year, does not guarantee the knowledge to prepare in the next. In addition, I have encountered long time preparers that had been doing it wrong for years. Therefore, grandfathering would not be appropriate. I also believe that people should be certified as to what type of return they can prepare. CPA's are licensed as to whether they can sign off on audits, tax return, or both. This regulation is based on the education they have acquired during the licensure period. I am not opposed to "proving" what it is that I know. If you do not have a clue, you can cause some serious havoc for taxpayers.
One final thought as to the long time preparer issue. I think in the interest of the profession, we as tax preparers should be all about providing comfort to those we serve. Take the test, I will take it with you. I know when I took the CPA exam, I had already been preparing returns for a few years, I aced the tax part no study required because I already knew what I was doing. Although taking a test may seem like a pain, and maybe even irksome, I think those long time prepares will sail on through with no problems. And those who don't, well then we have weeded out some scary preparers.
SCK-I certainly understand the reasoning behind making everyone take the initial proficiency exam, even seasoned pros, as you have explained. I too have seen strange things on returns prepared by "old-timers" with all kinds of initials. One of my concerns is the practicality of making everyone take the test. We are talking about testing well over 1 Million preparers (I would include CPAs and attorneys who want to prepare 1040s). Personally I think it would be literally impossible for the IRS to properly undertake this task in the short period of time available. The IRS had enough problems testing a few thousand EA applicants each year – although they have apparently now successfully "outsourced" the enrollment exam.Another concern is that making the registration process work will take the support and cooperation of all ethical preparers. If I feel this way about taking a test after 38 years I expect there are many others out there who feel the same. I also understand that the best way to assure continued proficiency is by a test each time one renews (probably every other year). However no other similar financial designation required continued testing. There is only one enrollment exam for EAs, and one CPA exam for CPAs, and you only have to pass the bar once. Because of this making tax preparers take a test every other year is a very excessive requirement.And if the IRS would not be able to test 1 Million plus once, how would they be able to do so every other year.TWTP
You make an excellent point as to the practicality of the testing processes.Unfortunately, my husband is sitting here reminding me that we have a book (about income tax workpapers of all things) due to the publisher next week and I have not completed my section. So I will have to get back to you on this at a later date.