Ways and Means Hearing on New IRS Paid Tax Return Preparers

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The July 28, 2011 hearing focused on "reviewing the new requirements on paid return preparers, assessing progress made by the IRS in preparing and implementing a program work plan, and understanding how this will ultimately impact the tax return preparer community and taxpayers. "

Witness list:
PANEL 1
David Williams, Director, IRS Return Preparer Office, Internal Revenue Service, Washington, D.C.

Jim White, Director, Strategic Issues, Government Accountability Office, Washington, D.C.

PANEL 2:
Kathy Pickering, Vice President – Government Relations and Executive Director of the Tax Institute, H&R Block, Kansas City, MO

Patricia Thompson, Chair, AICPA Tax Executive Committee, American Institute of Certified Public Accountants, Washington, D.C.

Paul Cinquemani, Director of Member Services, Business Development and Government Relations, National Association of Tax Professionals, Appleton, WI

Lonnie Gary, EA, USTCP Chair, National Association of Enrolled Agents Government Relations Committee, Washington, D.C.

David Rothstein, Researcher, Policy Matters Ohio, Research Fellow, The New America Foundation, Cleveland, OH

Links to testimony are at http://waysandmeans.house.gov/Calendar/ ... tID=253143

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The National Association of Tax Professionals, which gave a presentation, is upset about some of the new rules. Specifically, the new rules effective August 2, 2011 provide that a "registered tax return preparer" (which will generally be someone who is not an attorney, CPA, or enrolled agent) will be limited as to what kind of tax work he or she can do. The new rules provide:

(3) A registered tax return preparer may represent taxpayers before revenue agents, customer service representatives, or similar officers and employees of the Internal Revenue Service (including the Taxpayer Advocate Service) during an examination if the registered tax return preparer signed the tax return or claim for refund for the taxable year or period under examination. Unless otherwise prescribed by regulation or notice, this right does not permit such individual to represent the taxpayer, regardless of the circumstances requiring representation, before appeals officers, revenue officers, Counsel or similar officers or employees of the Internal Revenue Service or the Treasury Department. A registered tax return preparer’s authorization to practice under this part also does not include the authority to provide tax advice to a client or another person except as necessary to prepare a tax return, claim for refund, or other document intended to be submitted to the Internal Revenue Service.

---31 C.F.R. section 10.3(f)(3), as amended by 76 Fed. Reg. 32286, 32301 (June 3, 2011), effective Aug. 2, 2011 (bolding added).

These rules are bad news for the "registered tax return preparer" (RTRP). The RTRP will be able to represent a taxpayer only if the the RTRP signed the return in question.

Further, even if the RTRP represented the taxpayer in an IRS examination before a Revenue Agent, the RTRP will NOT be able to represent that taxpayer if the Revenue Agent's report brings bad news and the taxpayer wants to go to IRS Appeals. The taxpayer will have to find an attorney, CPA, or enrolled agent to represent him or her before the Appeals Officer.

The RTRP also will NOT be able to represent the taxpayer before a Revenue Officer -- meaning, an IRS collections officer -- or a "similar" employee. Presumably, this means that the RTRP will not be able to handle matters involving things such as notices of federal tax lien and notices of intent to levy.

What about installment agreements? That's a collections matter, and the IRS employee handling that is presumably either a Revenue Officer or a "similar" employee.

Even a routine call to ACS might be beyond the authority of an RTRP, effective August 2.

Further, under the new rule, the taxpayer will not be able to call up his RTRP for just any old tax advice -- say, regarding a proposed purchase or sale of property -- unless that advice is NECESSARY to the preparation of a federal tax return, etc.

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Much of the limited representation is similar to what was permitted for the "unenrolled preparer" in the past. Being able to only represent those for which one was the preparer of the return and being only able to represent at certain levels of the IRS are not new.

In the comments from Paul Cinquemani, Director of Member Services, Business Development and Government Relations for National Association of Tax Professionals, it seems that the provision to no longer be able to provide tax advice is most problematic.

The egregious change to Section 10.3 of Circular 230 resulting in restraint of trade for affected tax preparers. Section 10.3(f)(3) prevents them from giving pre-transaction advice to their clients. It results in either putting taxpayers in harm’s way for non-compliance or it forces affected preparers out of business because they cannot compete.

If a RTRP can not give advice (except as needed to prepare a tax return), what about certified financial planners, insurance agents or others that may give tax advice?
Apparently the prohibition on pre-transaction advice applies only to a registered tax return preparer and not to others that do not prepare tax returns; since there is no authority for the IRS to regulate those other financial professionals.
That seems odd, to me.

One option will be for more individuals to try to qualify as enrolled agents.