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IRS Issues: Not Political

In the August, 2013 edition of Accounting Today, Roger Russell makes a two pronged case for IRS Issues in his article: “The IRS: An institution in crisis”.  In the first case, a financial issue, he lays out a position that the organization is being asked to do more and more with less and less funding.  Russell quotes Nina Olson, the National Tax Advocate as stating in her annual report to Congress that the IRS is under a “radically transformed mission coupled with inadequate funding to accomplish that mission” … “limiting its attention to taxpayer rights or fundemental tax administration principles”. Russell also quotes Marty Davidoff, CPA, Esq., stating that the IRS “budget is down 8%in 3 years”, and Roger Harris, former chair of the IRS Advisory Council, that “there is a danger of an over-reaction to the IRS scandals”, with budgets being cut even further, yet more being expected of the institution, as in managing the financial aspects of Obamacare.  In my opinion, given the past incidents of fallacious spending within the IRS like a Star Trek video or line dancing classes for training purposes, or spending $1 million more than necessary on a conference because “the money was there”, I personally believe there is plenty of money to be found in the IRS or any government budget, someone just has to begin looking for it (see my last post “Government or For Profit Accounting”).

In the second part of Russell’s atricle, an administrative issue, he goes into the registration of tax preparers, which Olson established in her report to Congress that she will be focusing on “even with the Loving decision invalidating the IRS testing and continuing education requirements under the Registered Tax Return Preparer Program”.

For those not familiar with the “Loving decision”, in 2011, the IRS began a program where any individual that is paid for preparing or assisting in the preparation of a federal tax return or other tax forms were required to maintain a Preparer Tax Identification Number (PTIN).  In order to obtain/maintain the PTIN, the preparer would be required to pass an IRS approved competency exam and complete 15 hours of Continuing Professional Eucation (CPE’s) annually.  CPA’s, attorneys, Enrolled Agents and certain supervised preparers were exempted from these requirements because they either have qualification requirements of their own to satisfy, which the IRS acknowledges, or, as with supervised preparers, they were not signing off on the documents.  In 2012, the Institute for Justice sued the IRS on behalf of three tax preparers, Sabina Loving, Elmer Kilian and John Gambino, in Sabina Loving et al. V Internal Revenue, et al., citing that the requirements placed an undue burden on preparers, which would cause them to either have to raise their rates or go out of business.  On 01/18/2013, the U.S. District Court for the District of Columbia decided that the IRS had exceeded its authority in imposing certain requirements on tax return preparers, reasoning that Congress had given the Treasury authority to regulate the practice of representatives before the Treasury, but that preparing a tax return did not rise to the status of “presenting a case” before the Treasury.

On 03/29/2013, the IRS filed an appeal of the Loving decision, contending that “practice before the IRS should include not only practice as described in Title 31 U.S. Code 330(a)(2)(D), i.e., presenting cases, but also practice as described in Section 330(a)(2)(C): “necessary qualifications to enable the representative to provide to persons valuable service”.  A group of former IRS commissioners, the National Law Center and National Tax Coalition have all filed briefs in support of the IRS; the attorneys for the tax preparers have indicated that briefs in support of Sabina, et al. are expected to be filed by the Tax Foundation (George S. Jones and Mark A. Luscombe; Accounting Today, July 2013; Pg 20).

In Olson’s report to Congress, she states that the “National Taxpayer Advocate’s main focus continues to be the retention of minimum standards for return preparation”, and that “the reinstatement or reissuance of the IRS preparer oversight rules would promote tax compliance by imposing minimum competency standards”.  Robert Kerr, senior director of Government relations at the National Association of Enrolled Agents believes that the IRS will win the appeal, with the approach being “completely vetted within the agency”, believing the agency “would not have gone down this path [of registration, licensing and regulation of return preparers] if it didn’t think it had the authority to do so”; however, Kerr also noted, as the court stated in its decision knocking down the process, that Congress can legislate the agency’s authority to regulate preparers of any documents submitted to it.  Personally, I wrote to my representative and senators in Congress in support of these competency requirements, hearing back from my representitive, Andy Harris (R), that the House Ways and Means and Senate Finance Committees are expected to deal with this issue in upcoming tax reform.  I did not get any return mail from either Senators Barbara Mikulski (D) or Ben Cardin (D).

Where I strongly believe that funds could be found in the IRS budget to operate effectively if only there were someone to look for those funds, I also feel very strongly that anyone that is paid to prepare a tax return or any other document presented to the IRS on a third party’s behalf should be required to prove their competence through passing an appropriate exam and maintaining that competence by completing prescribed continuing education annually.  This would not only insure the public that anyone preparing their documents to be presented to the IRS is qualifed to do so, but will also reduce the amount of errors in documents presented to the IRS, enabling IRS agents to apply their time to other matters.  I for one was registered to take the exam, before it was cancelled, and have completed the continuing education, even though it isn’t required because I personnaly feel I should keep my skills as up-to-date as possible to provide a valid service to the folks served by Essential Accounting, LLC.