16 June 2014 Roundtable, 2014-0523051C6 - Registration of Tax Preparers - STEP Q 14

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Registration of Tax Preparers in Canada.

Position: General response provided by CPB.

Reasons: See below.

STEP CRA Roundtable - June 2014

Question 14. Registration of Tax Preparers

Question (a)

Recently, the United States government lost its appeal of the Lovey decision [Sabina Loving et al v IRS et al] which, in essence, states that the IRS has no legal authority to regulate the tax preparation industry. Does the CRA have any comment on how this recent decision might impact the RTPP in Canada?

Question (b)

Can the CRA provide an update on its consultations on the RTPP?

CRA Response 14(a)

In 2010, the IRS launched the Tax Return Preparer Initiative. The initiative was designed to ensure that all preparers of individual income tax returns have a minimum level of competency and adhere to professional standards, with an overarching objective of better service to taxpayers and increased compliance.

Under the initiative, the IRS began phasing in a multipronged strategy. This strategy included requiring individuals to obtain a Preparer Tax Identification Number (PTIN) from the IRS if they prepare all, or a substantial portion of, any federal tax return or refund claim for compensation. The initiative also required all paid preparers of individual income tax returns who are not CPAs, attorneys or enrolled agents to pass a competency exam and complete annual continuing education requirements related to tax law and professional conduct. Preparers who passed the test, held a valid PTIN, and completed 15 hours of continuing education each year would be given a new designation – Registered Tax Return Preparer.

The phased implementation of the return preparer program stalled in January 2013 when the U.S. District Court for the District of Columbia issued an injunction in the case of Loving vs. IRS that prevented the agency from enforcing the regulatory requirements for competency testing and continuing education. The court said that the IRS lacked statutory authority to impose those requirements on return preparers. The court later clarified that the injunction did not apply to the requirement that all paid return preparers obtain a PTIN, acknowledging that the IRS has that authority under section 6109 of the Internal Revenue Code.

Further action in the case occurred on February 11, 2014, when the U.S. Court of Appeals for the District of Columbia Circuit upheld the lower court's decision. The IRS is continuing to assess the scope and impact of the Court's decision while consideration is given to options for appeal. (footnote 1)

The proposed Canadian program, referred to as the Registration of Tax Preparers Program (RTPP), will not introduce tax competency standards or professional development standards. What this means is that tax competency testing and continuing education requirements will not be applicable.

At this time, the CRA does not feel that it is necessary to introduce standards, especially, since some are already in place among the professional accounting associations. By registering tax preparers, the CRA will be able to fulfill the goal of the RTPP — to identify which tax preparers are making errors and to work with them to prevent these errors before the tax return is filed.

The CRA will also ensure that the necessary legislative or regulatory requirements are appropriately addressed prior to implementation of the RTPP.

CRA Response 14(b)

On January 17, 2014, Minister Kerry-Lynne Findlay announced the introduction of a new three-point plan to improve compliance and provide support to the small and medium-sized business community. As part of this initiative, the Minister launched a consultation process with taxpayers and the tax preparer community on the proposed Registration of Tax Preparers Program (RTPP), an important component of the CRA's new and innovative approach to its compliance programs.

The RTPP focuses on working with tax preparers to prevent errors when tax returns are filed. Under the proposed RTPP, tax preparers who prepare individual and corporate income tax returns for a fee would be required to register with the CRA. Registration would allow the CRA to identify where errors are being made and work with the tax preparer, using a strategic compliance approach, to correct these errors before the tax return is filed.

The tax preparer community has been highly engaged in the consultations, offering extensive feedback and suggestions on the following nine key issues which are critical to the design of the RTPP:

1. The reasons why errors are found in income tax returns that are prepared by tax preparers.
2. Who would be required to register, and the challenges that may represent for the tax preparation industry.
3. The need for both a personal and entity identification number.
4. The publication of a list of registered tax preparers.
5. The strategic compliance approach.
6. Possible sanctions.
7. The redress process.
8. The types of services that would enhance the overall completeness and accuracy of tax returns.
9. The compliance burden for individual tax preparers and tax preparation businesses associated with the proposed registration program.

Feedback has been received through the seven in-person discussion sessions that were held in February 2014, the on-line feedback form, as well as written correspondence.

The consultation period continues until May 31, 2014 and all stakeholders are encouraged to provide input via the on-line feedback form or in writing. A final report on the results of the consultation process will be issued to the public in summer 2014.

Vyjayanthi Srikanth (for CPB)
2014-052305

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 Explanation taken from written testimony of John A Koskinen, Commissioner Internal Revenue Service before the Senate Finance Committee on Regulation of Tax Return Preparers April 8, 2014 with minor editing changes.