Tax preparer registration mandate puts cart before the horse

August 25, 2010

By David M. Reape, CPA, Ciuni & Panichi Inc.

cart Despite heavy opposition from OSCPA and the AICPA, the IRS is moving ahead quickly with plans for its burdensome new tax preparer registration program.

Beginning in mid -September, any individual who prepares all or substantially all of a return for compensation—even if they don’t sign the return—will be required to register with the IRS and obtain a “preparer tax identification number,” or PTIN. This means a CPA firm’s unlicensed staff accountants, and even interns, will be subject to the registration and fee requirements.

And eventually, preparers will also need to pass an exam to prove competency and obtain 15 hours of CPE each year.

So far, CPAs will be exempt from the education and testing requirements, but employees who prepare returns under the supervision of CPAs or other preparers would not be.

The plan would also extend the Circular 230 ethics rules to all paid preparers, not just CPAs.

The IRS claims the new program will greatly reduce fraud and boost accuracy and compliance across the industry, but hasn’t yet demonstrated how this will be accomplished.

That’s largely because the IRS hasn’t defined what the testing and education standards will be or what will happen if someone fails to meet competency requirements.

As a member of OSCPA’s Task Force on Standards for Tax Preparers, I am angry and concerned that the IRS is putting the cart before the horse on this mandate.

Since the new plan was first announced in January, OSCPA has sent several comment letters to the IRS and asked Ohio’s Congressional delegation for help in slowing down this rush to regulate. Several Ohio members of Congress have been very supportive of our efforts, but the IRS steamroller appears to be moving forward anyhow.

While the premise behind the new registration program is sound—curbing abuse and making all tax preparers more competent—the implementation will add a costly layer of administration for ethical and competent preparers such as CPAs and their associates.

Specifically, the IRS is requiring registration of all preparers immediately and at a cost of $64.25 per person the first year—a hefty fee for a still largely undefined program. Could the need to find new revenue sources have as much or more to do with this new fee on CPAs and others than the ability to improve compliance?

A fee-laden mandate that increases administration doesn’t translate to increased tax compliance. But it could create false expectations and confidence among taxpayers that preparers are skilled and ethical, and therefore less likely to commit fraud.

But where is the real oversight?

A better solution would be a major public education initiative that teaches taxpayers how to choose a qualified tax preparer. This might help to address some of the larger compliance and fraud issues surrounding the Earned Income Tax Credit (EITC) and Refund Anticipation Loans.

Longer term, serious consideration should be given to simplifying the tax code. This would do much to ease the compliance burden for taxpayers and increase preparer accuracy.

OSCPA and the AICPA are urging the IRS to act slowly and more thoughtfully in implementing the proposed new registration system.

If you agree, please add your voice to the conversation and ask the IRS to think before it mandates.

Send your comments to the IRS by e-mail at *public_liaison@irs.gov. (Please note: The asterisk is a required character in the e-mail address.) Click here for suggested message points to include in your e-mail.


Word from NASBA – “We will not be disrespected”

January 16, 2009

Audience members at the December meeting of the Accountancy Board of Ohio got to hear first-hand the priorities of guests Tom Sadler, Chairman of the National Association of State Boards of Accountancy (NASBA,) and David Costello, NASBA’s Executive Director.

Topping Sadler’s list is peer review – obtaining peer review as a statutory requirement in states that don’t have it, and achieving state board oversight in states that do (Ohio already has statutory peer review and state board oversight). NASBA also aims to look “under the curtain” for reviews administered at the national level, which have no state board oversight, including achieving an oversight process for desk reviews conducted at AICPA to “ensure independence and that peer review is truly a public interest process.” Sadler noted that he was pleased with AICPA and state society cooperation toward this objective.

This priority was followed by the “Four E’s”:

  • Exam – Renegotiating the contract for the computerized CPA exam, and addressing international candidacy for the CPA exam
  • Education – Protecting the 150-hour requirement to sit for the exam
  • Ethics – Is there opportunity for convergence in state ethics requirements and the AICPA code of professional conduct?
  • Enforcement – As governmental agencies increasingly refer cases to the AICPA, how can these be transitioned to state board enforcement?

Sadler commended Ohio’s reputation for enforcement, but noted that nationwide, “we will not be disrespected.”

Costello spoke to state boards’ response to the prospect of international standard-setting, noting that NASBA had concerns at this time about committing state boards to everything promulgated by international standard-setters. A committee had been formed to address implications of global strategies, including international standard-setting, international candidacy for the CPA exam, and convergence of ethics requirements.

A controversial issue within the profession has been movement by some states to allow candidates to sit for the exam with 120 hours of education, but still requiring 150 hours for state licensure. NASBA research finds no detriment in passing rates for sitting at 120 hours, but the topic will be discussed in 2009 regional meetings.

Contrary to NASBA’s views, proponents of retaining the 150-hour requirement to sit for the exam criticize the 120/150 model for chipping away at the intent of the original 150-hour legislation, and communicating the wrong message to the public about the level of education and preparation required to become a CPA. Some critics also question the validity of the NASBA research.

Costello again commended Ohio as a leader in adopting model accountancy law, particularly in the area of mobility for CPAs practicing in multiple states.


It’s all about staffing

November 11, 2008

Human capital concerns topped the priority lists for firms of all sizes, according to the AICPA Private Company Practice Section’s Top MAP Issues survey. Speaking at last month’s Cleveland Accounting Show, PCPS’s Heidi Brundage, CPA reported on conclusions from the Top MAP Issues Survey and challenges faced by firms in 2008.

For every breakdown by firm size, with the exception of sole practitioners, “finding qualified staff” was the number one concern, with ‘”retaining qualified staff” not far behind. Differences between employer and employee top reasons for joining and staying with a firm highlight staffing disconnects:

  • While employers listed “salary” as the top reason to join a firm, employees listed career growth opportunities as their highest priority.
  • While employers again listed “salary” as the top reason for staying with a firm, employees rated “respect for the mission” of the organization more highly.

Bottom line advice for employers included clarifying what career growth in their firm or company “looks like,” and providing opportunities for staff to be engaged in the firm’s mission, vision and values.

The 2008 PCPS/TSCPA National MAP Survey results indicate that the human capital challenge may be shifting.

In a preview of survey results, Jim Metzler, CPA, AICPA Vice President Small Firm Interests, said that for the first year in some time, staffing concerns may be easing. (Note that the survey was completed prior to the current market crunch.) Total turnover rates for participating firms dropped from 42% in 2006 to 14.5% in 2008. Reported net earnings were healthy, and average compensated hours worked declined from 2006.

Retention of highly qualified staff may be replacing recruitment as firms’ top human capital concern, leading to changes in staffing strategies.

Other interesting results included a decline in audit and attest fees as a percentage of small firm revenues. Brundage cited risk assessment standards and complexity as reasons that some firms have reduced attest services as a percentage of their practice.


CPA value at home and abroad

October 30, 2008

In his presentation to Council October 20, Barry Melancon, CPA, AICPA President and CEO, stressed that the AICPA had received “pretty good indicators” that the SEC would not be rolling back fair values. In fact, Melancon reported, debates over “mark-to-market” would cease if a buyout goes through, as the market would then know real economic values.

Fundamentally, Melancon stated that accounting rules should be about true economic conditions, and that the independence of the standard-setting process should not be affected by political pressures.

As buyers attempt to sort out the true economic value of mortgage-backed securities, XBRL  can bring strong value in tracking data sets of underlying assets for the future, said Melancon. 

Timing of the proposed SEC roadmap for adoption of IFRS could be deferred by uncertainty in global capital markets or by a new political administration, according to Melancon.

As current events highlight the connectedness of international markets, what is the future value of the CPA in a global economy?

Facing increased international demand for the CPA designation, NASBA and the AICPA have been investigating the potential for international administration of the CPA exam. Reviewing this proposal, Leslie Murphy, CPA, and Arleen Thomas, AICPA Senior Vice President, outlined criteria important to this consideration, including:

·         Assessing the security of the exam and the testing ethics of the local culture

·         Requiring the same rigorous process as is required in U.S. administration of the exam

·         Not authorizing CPA designation holders to provide attestation services, which continue to be subject to local licensure.

At the heart of the issue is how will the CPA credential be positioned in a global marketplace.  Today “CPA” only applies inside the U.S.  In a global environment, what steps should be taken to ensure that the CPA credential means more than just competence in the U.S.?  How can we ensure that other global credentials don’t make CPA a second tier credential?

Concerns raised by Council members included putting the CPA “brand” in the hands of candidates who may not have the same level of buy-in to the profession’s core values, and how the disciplinary process would work for those holding the CPA designation outside of the U.S.

Results of a new U.S. survey indicate that CPA brand is stronger than ever. Presenting recent survey results, Melancon reported that the CPA has been resilient in the face of crisis and resistant to reinvention. Investors and business decision-makers are more confident in work done by a CPA than a non-licensed accountant, and nearly two-thirds responded that CPAs are subject to more rigorous training and testing than other financial credentials.

The prominence of fraud as a top concern of investors and business decision-makers has declined, being replaced by global competitiveness, health care, and economic growth as the dominant concerns. CPAs ranked second only to physicians in market perception, with a notable decline of mortgage brokers and hedge fund managers to the bottom of the survey results.

The research was conducted post-sub-prime mortgage crisis, but pre-stock market decline.


Exercising Leadership

October 29, 2008

In evaluating the highest attributes of the CPA profession, the market continues to value CPAs for integrity, professional competence and objectivity, according to the AICPA research.

Integrity, reliability and accountability are among the core values on the reverse side of Ernie Almonte’s business card. Almonte took office as the new Chair of the AICPA Board of Directors during this meeting of Council. When introducing himself, Almonte said he always presents the card values-side up, and asks the person to call the number on the back of the card if he ever fails to live up to those values.

In an impassioned speech accepting his Chairmanship of the AICPA, Ernest Almonte, the Auditor General of the State of Rhode Island, urged CPAs to learn to listen to many perspectives. Using a ballroom analogy, Almonte encouraged CPAs to continually shift from the balcony to the dance floor: gaining perspective of a rapidly changing, increasingly borderless world, but then reinserting oneself as a leader and determining how you should be part of the action.

Our job as a profession, per Almonte, is to:

· Adhere to a solid set of unwavering core values

· Become well-rounded on the trends and forces within and outside of the profession

· Communicate great things about our profession to others

· Help others see opportunities available to them, whether they are in international business, or on the path toward becoming a CPA.

Increasing diversity in the profession is a priority for Almonte as Chair.


“I Feel All Too Relevant Again”

October 28, 2008

That’s what AICPA Chair Randy Fletchall, CPA said in introducing the Fall session of AICPA’s governing Council on October 19. Discussing the current state of the economy, Fletchall emphasized the role of the CPA profession in addressing recent events.

Responding to charges that fair value accounting may have played a role in the economic downturn, Fletchall said that fair values capture economic realities, and any standard that works to obscure reality isn’t transparent or beneficial to capital markets. While the AICPA supports a timely review of FAS 157 by the SEC and the profession’s participation in that review, they don’t believe that fair value should be suspended .

Instead, Fletchall’s view is that heightened interest in accounting for financial institutions points all the more strongly to a need for one consistent, global set of accounting standards.

Fletchall thanked the members of the profession for all they do to protect public trust and confidence.

Accepting the AICPA’s Gold Medal Awards for Distinguished Service, Robert Bunting, CPA, former Chair of the AICPA, and David Walker, CPA, former Comptroller of the United States and head of the GAO, echoed the theme of the profession’s commitment to core ethical values.

Walker noted that a reputation that took 90 years to build can fall quickly if CPAs lose sight of their core values. Walker urged that what policy makers do and fail to do in the next 5 years will have a profound impact on the country, and challenged CPAs to take up the priorities of fiscal responsibility and government accountability.

The economic crisis makes a business case for the AICPA’s 360 Degrees of Financial Literacy and Feed the Pig campaigns. “I’m convinced the profession is part of the solution,” said Carl George, CPA, chair of AICPA’s National CPA Financial Literacy Commission.

George noted that savings deficits and financial leverage are “the critical issues of our time,” and presented results of research that indicates that the “Feed the Pig” message is very sticky. Based upon “financial wishful thinking,” the ads emphasize personal responsibility, through taking simple, achievable actions.

The new campaign will launch November 20, 2008.


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