Presented by Mike Deschamps MST EA CPA

Professor of Accounting and Lead Instructor

MiraCosta CollegeOceanside, CA

The Rise and Fall of the RTRP Exam and Beyond……

RTRP – How To Describe The Current State Of Affairs “What a long strange trip it’s been”

The Grateful Dead

“I used to go away for weeks in a state of confusion.” Albert Einstein (or any community college tax instructor at this point)

“Don't be afraid to be confused. Try to remain permanently confused.” George Sanders

In The Beginning – The Preparer Registration Issue!

Senate Bill 832 Would have required that

all tax preparers register with the IRS and take a national exam administered by the IRS.

Why? – Government Accountability Office in a study found mistakes in every return that they examined from commercial return preparers (it was a relatively small sample).

National Taxpayer Advocate Nina Olson in her 2003 report – “Over 55% of the 130 million individual taxpayers hired a return preparer. The majority of those preparers did not possess a legitimate license demonstrating competency or ethical standards”.

Problem – it meant that even existing credentialed preparers could have to take the exam.

National Association of Enrolled Agents – “ strongly endorses the concept of regulating all paid return preparers, requiring an initial test for competency, background checks, annual minimum continuing education requirements and compliance with the current Circular 230 ethical standards”.

Only three states at that point had established entry requirements for the field of tax preparation – California, Oregon & New York.

The Timeline….. IRS Publication 4832 -

Return Preparer Review, published in 2009: “The precise number of tax

return preparers is not known, but the IRS estimates that there are between 900,000 and 1.2 million individuals preparing tax returns for a fee.

Although some tax return preparers (e.g., attorneys and certified public accountants) are licensed by their States and others are enrolled to practice by the IRS, a large share of tax return preparers do not pass any government or professionally mandated competency requirements before they prepare a federal tax return.”

In The Beginning……

The legislation to create the testing requirement was passed.

The outline of the exam was based on survey responses sent to more than 700,00 tax preparers. Who identified the basic knowledge

groupings needed to perform tasks as a minimally competent tax preparer.

The RTRP Exam Structure

Domain Approx % of Exam Domain 1: Preliminary Work and Collection of 15% Taxpayer DataDomain 2: Treatment of Income and Assets 22%Domain 3: Deductions and Credits 22%Domain 4: Other Taxes 11%Domain 5: Completion of the Filing Process 10%Domain 6: Practices and Procedures 5%Domain 7: Ethics 15%

The Exam (cont) Testing began in November of 2011. IRS data as of January 3, 2013 indicated

that approximately 53,000 preparers had passed the exam at that point.

However, we have since learned that they had a failure rate of about 26% in that first testing group and were aiming for a failure rate of only 10%.

Does this not beg the question of why some regulation was needed?

And then…. Loving v. IRS On March 13, 2012, three

independent tax preparers joined the Institute for Justice in filing suit against the IRS in the U.S. District Court for the District of Columbia.

Challenged the IRS’s Authority To License Tax Return Preparers.

Essentially stated that the new regulation requirements were ”unfairly burdensome on small tax businesses”.

Elmer Kilian hangs a wooden shingle outside his home during tax season, as he has for the past 30 years.

He has been preparing taxes part-time and seasonally on his dining room table for about 30 years.

How about a little competency check to go along with that shingle?

Wisconsin Department of Safety and Professional Services

To obtain a barber license by examination: Complete ONE of the following education requirements:

Graduate from high school Attain high school graduation equivalency participate in a program approved by the department Be at least 18 years of age and meet the ability to benefit rule

under 20 USC 1091

Complete ONE of the following training requirements: Graduate from a prescribed barbering course of at least 1,000

hours in a school of barbering licensed by the department; OR  Successfully complete an apprenticeship of 2,000 hours (288

theory instruction and 1,712 hours of practical training), and then

Pass the examination*

Loving v. IRS (cont.) Attorneys for the plaintiffs argued Congress never gave the IRS the

authority to license tax preparers, and the IRS can’t give itself that power.

Key point of contention - 31 U.S.C. § 330, originally enacted in 1884, giving the Treasury Secretary authority to regulate people who practice before the Treasury Department. In dispute was the IRS’s interpretation that tax-return preparers are

“representatives” who “practice” before the IRS. Plaintiffs argued that filing a tax return would never, in normal usage, be

described as “presenting a case.” On January 18’th 2013 a federal judge in the US District Court of the

District of Columbia found for the plaintiffs stating in part that “At the time of filing, the taxpayer has no dispute with the IRS; there is no “case” to present. This definition makes sense only in connection with those who assist taxpayers in the examination and appeals stages of the process”. Case 1:12-cv-00385-JEB

Loving v. IRS (cont.) February 1, 2013 – The federal judge in the Loving case

denied the IRS’s request to suspend his January 18 ruling that struck down the IRS’s tax-preparer scheme as unlawful. Judge Boasberg clarified that his injunction did not affect a separate set of

regulations requiring tax preparers to have an identification number known as a PTIN.   

March 29’th, 2013 – The US Court of Appeals for the District of Columbia denies the IRS request of a stay on the January 18’th ruling.

June 5, 2013 – IRS files its motion for appeal of the Loving case decision.

September 24, 2013 – Oral arguments are heard on the Loving case in the US Court of Appeals in the District of Columbia.

And then……. The government proceeded to

regulate these intermediaries, certifying reputable ones as “enrolled agents”. We still use this title today for

people “enrolled to practice” before the IRS.

IRS argued that tax return preparers represent their customers in much the same way as EA’s do.

Plaintiffs attorney argued no, they don’t. Performing a service but not a

representative act.

IRS uses 1884 “dead horse” law in defense of tax preparer rules. The IRS attorney stated he

hated to “beat a dead horse”, but he did anyway.

After the civil war many people brought war loss claims against the US government often for dead or missing horses.

From this emerged a class of agents who would press the claim against the government for a fee.

And then…….

February 11, 2014 – The Court of Appeals for the District of Columbia renders it’s decision.

The key question as highlighted by the three judge panel – “is whether the IRS’s authority to regulate the practice of representatives of persons before the Department of the Treasury. encompasses authority to regulate tax-return preparers”.

And then……..

“In our judgment, the traditional tools of statutory interpretation – including the statute’s text, history, structure, and context – foreclose and render unreasonable the IRS’s interpretation of Section 330”.

In English - the IRS does not have authority to do this based upon the legal concepts that they have based their arguments on.

RTRP Exam – the end?

At this point, as a mandatory requirement, yes it is.

IRS chose not to pursue certiorari Meaning they have declined to take this

appeal to the Supreme Court. “This brings finality to a major victory for

independent tax preparers—and taxpayers—nationwide,” said Dan Alban of the Institute for Justice, lead attorney for the three preparers who filed the suit.

However….. IRS Commissioner John Koskinen: “ the IRS is

still looking at options such as further appeals, pursuing legislative remedies in Congress, and offering voluntary credentials for tax preparers”.

IMHO – I think that the first two are out of the picture for now and that leaves door #3 – what could that look like? One significant possibility – State regulation. There are already models in place.

The State Models Prior to the RTRP exam

creation, three states had already begun to regulate tax preparers:

New York Oregon California

Now, we have a fourth state in the mix – Maryland.

“Section 21-302(e) of the Tax Preparers Act provides that an applicant for registration shall pass an examination given by the Board”.

State Regulation - Issues Consistency – the existing four states

with preparer regulation all have some significant differences in their requirements.

Maryland, as previously noted, will have an exam requirement.

California does not – places the burden of ensuring competency upon the education provider.

California Model The California Tax Education Council (CTEC) was established by the

California State Legislature to promote competent tax preparation within the State of California

Who is required to comply with the California Tax Preparers Act? Any person who for a fee, assists with or prepares a State or Federal tax

return, or assumes responsibility for such a return, or who offers these services

To become a Registered Tax Preparer in California, you must Find a CTEC approved curriculum provider, Successfully complete a 60-hour course approved for qualifying education,

which includes 45 hour of federal instruction and 15 hours of state, Obtain a tax preparer bond from an insurance/surety agent, Secure a PTIN (Practioner Tax Identification Number), Apply to obtain a certificate of completion from CTEC.

In addition, there is a requirement of 20 hours of CTEC approved continuing education (12 hours of federal taxation, 4 hours of California taxation and 4 hours of either federal or California). This education must be taken from a CTEC approved curriculum provider and completed by October 31 of each year.

If I were King…..

The individual portion of the Enrolled Agent exam would serve as the qualifying test for the RTRP credential.

Successful candidates would then have 2 or 3 years to pass the entire EA exam. If they did not, they would have to go

back and pass Part 1 again in order to maintain the credential.

What Should Community Colleges Do?

In the absence of state regulation, and even with that, I would argue for increased emphasis on attaining the Enrolled Agent credential.

That bypasses any remaining sturm und drang that might erupt if the IRS decides to pursue some sort of legislative remedy to the issue of preparer regulation.

Preparing Your Students For The Enrolled Agent Exam

First, in addition to your individual tax class, need to add a class or classes that deal with corporations, partnerships, estates, and trusts. Plus, there will be other

issues like Circular 230 that will need to be covered as well.

And like the individual tax class, practical application of the concepts through projects and return preparation is key!

Second, create a review class that helps your students prepare for the exam: Can do this in partnership

with local chapters of professional organizations.

Develop your own using existing faculty.

The Key – whichever model that you chose, you must have instructors who know tax, understand the exam, and can teach!!!

Sources and References Institute for Justice Website - http://ij.org/irs-tax-preparers

ExamMatrix – RTRP News Blog – http://www.exammatrix.com/rtrp-exam-review/news/

Accounting Today – Senate Committee Mulls Regulation of Tax Preparers by Michael Cohn, 4/8/2014.

Accounting Today – IRS commissioner Sees Further Appeals as Unlikely by Michael Cohn, 2/20/14.

AICPA Tax Insider - Regulating all return preparers: Back to the drawing board by Annette Nelling, 3/13/2014.

Thompson Reuters News Agency – IRS Rides Dead Horse Act by Patrick Temple-West, 9/24/13.

Thompson Reuters News Agency - U.S. tax preparer rules land in Congress, tough road ahead by Patrick Temple-West, 3/17/13.