• Executive summary
• Background
• Feedback on key issues
• Overall comments
• Conclusion and next steps

The CRA is interested in feedback on the reasons why errors are found in income tax returns that are prepared by tax preparers.

Traditionally, errors are addressed by the CRA after a tax return has been filed, through an audit. The proposed RTPP would identify the errors and link them to the tax preparer responsible for filing the return. The CRA would work with that tax preparer through the proposed strategic compliance approach to prevent errors from occurring in the future.

From the perspective of the Individual and Small Preparers, many reasons were cited for the errors in tax returns. The most prevalent reason was that someone other than the tax preparer had made the errors. Several respondents indicated that taxpayers often provide incomplete information. Often, the tax preparer works from client-prepared summaries which, according to the respondents, contain errors. Further, if the engagement is a compilation agreement, the tax preparer has no obligation to verify the amounts. Some also stated that the CRA makes errors that the tax preparer must correct in the return.

The second most notable cause of errors identified was a lack of knowledge by the tax preparer. Many respondents noted examples of errors made by another tax preparer in prior years. In their opinion, there should be education or competency standards. Continuing education was considered necessary to ensure the quality of tax return preparation is high.

There was a desire from many respondents to receive additional information on how the CRA would define and attribute errors. There was concern that the CRA would hold tax preparers accountable for errors made by the client or others. In addition, many respondents thought that differences of opinion should not be considered an error as sometimes the appeals process or courts agree with the taxpayer’s filing position.

Other sources of errors mentioned, in order of prevalence, were:

• The tax system is too complex and that contributes to the incidence of errors.
• Tax filing season is a compressed timeframe and errors occur due to exhaustion, transposition errors, multiple deadlines, or lack of sufficient internal controls to identify errors.
• Information slips that arrive late result in errors as the tax return has already been filed and needs to be amended.

For the Large Firms and Associations, the most prevalent comment was a desire for additional information from the CRA on what would be considered an error for purposes of the RTPP. There was concern that interpretational issues would be considered an error. It was also requested that the CRA differentiate the source of errors and distinguish between personal (T1) and corporate (T2) errors so that attribution could be assigned to tax preparers for only their errors.

The next most prevalent concern was the desire for the CRA to confirm that the tax preparer’s obligation should not extend beyond the terms of the agreement between the tax preparer and the client. This comment supports the concern heard from others that CRA is shifting audit responsibility to tax preparers.

One large tax preparation firm recommended that the best way to reduce errors is to provide information to the tax preparation community that will allow them to self-manage their own error rates. The firm said that the industry is motivated to prepare high quality returns and the CRA should focus on providing them the tools to do so.

Other reasons cited for errors included incorrect information received from the client and late information slips. It was also suggested that thresholds be established so that time and effort are not devoted to small value items.

The CRA is interested in feedback on the registration process, who would be required to register, and the challenges that may represent for the tax preparation industry.

The proposed RTPP would require that all individuals who prepare a return for a fee would register. The proposal excludes volunteers who prepare returns as part of the Community Voluntary Income Tax Program, employees who prepare the return of their employer or individuals who, in the course of their duties of preparing an income tax return, are not held accountable for the completeness and accuracy of the return. This would include, for example, someone who performs data entry but does not complete the entire return and is not responsible for its accuracy.

A significant portion of the respondents in the Individual and Small Preparers category indicated that the CRA should use existing registration systems to capture the necessary information to allow the attribution of errors to a particular tax preparer. It was noted that the EFILE registration process could be adapted to capture information needed for the proposed RTPP. There was strong support for using the EFILE number as the identifier for the RTPP. It was also suggested that the business number (BN) could be used with a separate extension to represent the registered tax preparer.

A significant number of those who provided comments suggested that registration should apply to everyone and that there should be no exceptions. Several of these respondents suggested that only provincially-regulated tax preparers should be allowed to perform tax preparation services and be registered. Others suggested that certification would be required to ensure tax preparers are qualified, suggesting that as long as the preparer could meet the competency tests, they could prepare tax returns even if they were not members of a provincially-regulated association.

A small percentage of respondents suggested that only the person responsible for the return should have to register.

Other comments from Individual and Small Preparers included:

• All tax preparers should have to attend continuing education or undergo testing to maintain their registration.
• Only non-Chartered Professional Accountants (CPA) should be required to register.
• Registration as proposed would put some tax preparers out of business or non-compliant due to religious reasons. For example, the principles and teachings of some religions restrict the use of electronic communications.
• Personal tax issues of tax preparers, such as whether they have an assessment outstanding, should not prevent registration.

The top comment from the Large Firms and Associations category was the recommendation that the CRA restrict registration to those ultimately responsible for the tax return. This decision would be made by the business itself depending on its particular circumstances and internal controls.

One large association recommended that the CRA work with them to develop and implement minimum standards for personal suitability, conduct, education, and ongoing training. The assertion is that the public interest in the tax system depends on a tax preparer’s personal integrity and technical competency. It was also suggested that tax preparers who are regulated or employees/members of organizations with similar standards could be exempted from these requirements.

One large tax preparation firm recommended that volunteers should not be exempt. In line with feedback from the Individual and Small Preparers, the rationale was that volunteers make errors and therefore should be subject to the same registration requirements as paid tax preparers. It was also pointed out that this exemption could be used as a “safe harbor” for those wishing to avoid registration.

Similarly, Large Firms and Associations suggested that software developers, who design tax preparation software, should also be subject to the proposed RTPP.

One large association highlighted its concern against basing registration on professional affiliation. Its recommendation was that the registration system should apply consistently to all tax preparers. In the association's view, segregating tax preparers based on professional affiliation does not serve the public interest because the CRA does not have data that demonstrates a better track record of one professional group over another, and it implies to the public that all members of a professional association are active tax preparers, which is not the case.

It was also suggested that a staged implementation would allow for any necessary adjustments to improve the efficiency of the RTPP.

The CRA is interested in feedback on the need for both a personal (PIN) and entity identification number (EIN), and the burden that may represent for the tax preparation industry.

As proposed, both a PIN and an EIN would be issued to allow tax preparers to be associated with their employers.

Of the feedback received from the Individual and Small Preparers category, the majority indicated that there was no need for additional numbers and that the CRA should consider using the EFILE number, the RepID or the social insurance number. The EFILE number was supported the most. A slightly smaller percentage suggested that the proposal in the consultation paper was fine. A small percentage suggested that only the EIN was required. These respondents felt that if there were errors, it would be appropriate to address these at the entity level and allow the tax preparation business to enhance their internal processes to prevent future errors. It was also suggested that the CRA should consider having both the PIN and EIN for large companies but only one number for small companies.

The harmonization of existing tax preparer identification systems was endorsed by the Large Firms and Associations. Most respondents in this category noted this as a key recommendation.

Some respondents suggested a bulk registration process to minimize the burden of the initial registration. One firm suggested that both a PIN and an EIN were appropriate to allow the linkage between the individual preparer and the tax preparation firm.

The Large Firms and Associations also suggested that the EIN should include a suffix to identify regulated tax preparers to allow differentiation based on whether they are subject to competency, experience and conduct standards. In addition, it would allow for analysis of error rates of regulated and non-regulated tax preparers.

The CRA is interested in feedback on the publication of a list of registered tax preparers.

Of the feedback received from the Individual and Small Preparers category, those who support a public registry slightly outweighed the number of people who were against the idea. For those who did not support a public registry, the concerns, in order of prevalence, were that:

• a list of registered tax preparers could give the impression that the tax preparer has been certified by the CRA as competent;
• a list would serve no purpose if everyone is required to be registered;
• some individuals do not want their names published as they prefer to obtain their clients through word of mouth or may not be accepting new clients; and
• it is not the CRA’s role to advertise or otherwise promote tax preparers in Canada.

For those who supported the registry, the most prevalent reason was that they would be able to use the registry to market their businesses. Some said they would like the CRA to provide a rating of the tax preparer and include that rating in the registry. Others agreed with the concept of a public registry but would like it to be optional, at the discretion of the tax preparer. It was also suggested that the CRA distinguish designated accountants from non-designated tax preparers.

For respondents in the Large Firms and Associations category, the most prevalent comment was that a registry would provide a false sense of security to the public. The next most cited comment was that the CRA should have a public registry to allow clients to verify that a particular tax preparer is registered, but that the CRA should make it clear that registration does not mean that the tax preparer has been certified by the CRA as meeting minimum standards of any kind. It was also suggested that the CRA embark on a communication plan to emphasize to taxpayers that despite the introduction of a registration of tax preparers program, it is taxpayers who are ultimately responsible for the completeness and accuracy of their returns.

The CRA is interested in feedback on: (i) the strategic compliance approach; (ii) sanctions; and (iii) the redress process.

The strategic compliance approach as proposed would tailor the compliance approach to help tax preparers improve the reporting compliance of their clients. The reason for the error would be identified and an approach tailored to the tax preparer to reduce the likelihood of future errors.

Of the respondents in the Individual and Small Preparers category, slightly more were against the strategic compliance approach than in favour of it. However, it was clear that all stakeholders were interested in learning more details about the functioning of the strategic compliance program, particularly as concerns the linking of errors to tax preparers and what that would mean for them and their clients.

For those who did not favour the strategic compliance approach, their reasons, in order of prevalence, were that the CRA:

• should not make tax preparers accountable for the errors of their clients. They were concerned that the CRA was shifting responsibility from the taxpayer to the tax preparer. Tax preparers often rely on client-provided summaries and it was noted that there should be limits on the responsibility of tax preparers in terms of validating those figures. Others mentioned that the CRA should provide clear guidance to the industry on its expectations of tax preparers, especially in relation to client summaries. It was highlighted that if the tax preparer did not verify the taxpayer’s claims to the satisfaction of the CRA, they would be credited with errors that are not their responsibility. Some reminded the CRA that the onus of proof rests with the taxpayer to report their tax obligations correctly;
• should rely on provincial accounting associations to determine whether regulations have been respected. Provincial regulations define due diligence and it varies depending on the level of engagement;
• should rely on third party penalties and EFILE deregistration processes where significant non-compliance by a tax preparer is found;
• does not have the tools, nor is it the CRA’s role, to make this judgment. As the CRA proposes the sanctions, it should not also be involved in making a final determination of the validity of the proposed sanctions; and
• would get less compliance if a tax preparer refused a high risk client and the taxpayer then completed the tax return themselves.

Of those in favour of the strategic compliance approach, the main reasons were:

• Many thought it was a good approach to promote quality tax preparation and that tax preparers making errors should be expected to conform to a minimum standard.
• Some said that the CRA should implement a report card in conjunction with the strategic compliance approach.
• Others said the CRA should differentiate the reasons for the errors and possibly exclude taxpayer errors from the rating of the tax preparer.
• It was also suggested that an independent stakeholder committee be convened that would implement the sanctions process. This committee would be comprised of representatives from industry associations, accounting associations and the CRA.

In the Large Firms and Associations category, one association indicated that it would be unacceptable for a registration system to create and override the profession’s standards for reasonable care and due diligence. They, and other respondents, suggested that the CRA work with professional accounting associations to clearly articulate expectations and responsibilities.

One large national accounting firm supported an education-focused approach to dealing with non-compliance and recommended that the CRA communicate with taxpayers and the tax preparer community to ensure that issues of risk and errors are mitigated.

One large tax preparation firm suggested that firms with existing education and internal controls could administer any education needs on behalf of the CRA to avoid duplication of effort.

A number of respondents also mentioned the importance of establishing a clear protocol for contacting tax preparers under the strategic compliance approach, specifically in terms of notifying the entity for which the tax preparer works.

Another organization suggested that the CRA set up account executives as single points of contact with large firms to manage relationships as well as issues under the strategic compliance approach.

The CRA is interested in feedback on: (i) the strategic compliance approach; (ii) sanctions; and (iii) the redress process.

The proposed RTPP would invoke sanctions where the tax preparer has either failed to take reasonable care and exercise proper due diligence to correct errors or was deliberately non-compliant.

Slightly more respondents in the Individual and Small Preparers category agreed with the proposal than disagreed with it. Of those respondents in support of the sanctions proposed, the reasons, in order of prevalence, were that:

• a tax preparer who continually makes mistakes, whether accidentally or knowingly, should be held accountable;
• an independent committee should administer the sanctions to ensure fairness in the system, given that the CRA is proposing the sanctions;
• a tax preparer should be reported to their provincial association in cases of serious non-compliance; and
• this approach was a good interim step prior to applying third party penalties.

For those who opposed the proposed sanctions, the main reason was that the CRA already has access to the third party penalties and EFILE deregistration and it was felt that these measures were sufficient. Others felt that sanctions would be applied in circumstances where a difference of interpretation between the tax preparer and the CRA resulted in a reassessment. Concern centred around the assertion that the tax preparer should not be punished for these issues as the law is not always clear. It was also stated that the CRA should focus on education and promoting compliance rather than punishment.

Of those in the Large Firms and Associations category who responded to this issue, most indicated that sanctions are the responsibility of the provincial governing association and those organizations should be responsible for applying them. It was suggested that the CRA would sanction anyone who is not part of a provincially-regulated association.

Most also recommended that an oversight committee be established with representatives from the tax preparer community and other stakeholders to ensure consistency in application of sanctions and provide an independence function.

One large tax preparation firm suggested that the CRA introduce a relationship manager who would be the single point of contact for issues for the firm.

Large Firms and Associations also recommended that there be real time reporting on errors to facilitate early correction.

One respondent indicated that the CRA already has third party penalties to address serious non-compliance on the part of tax preparers and that mechanism should be used rather than creating another process.

One large tax preparation firm suggested that a key source of incorrect returns could be “ghost preparers” who prepare returns for cash and submit them as if the client had prepared them. It was suggested that using Reverse Internet Protocol Look-up as a tool to identify these individuals would be warranted to prevent any unintended negative impacts of the RTPP.

The CRA is interested in feedback on: (i) the strategic compliance approach; (ii) sanctions; and (iii) the redress process.

A robust redress process is being proposed to ensure tax preparers can dispute a proposed sanction. Possible redress options include an appeals process within the CRA either as an administrative review or through the filing of an objection. In addition, redress to the courts would be available.

Of the Individual and Small Preparers category, most respondents agreed with the redress process. Suggestions were offered as variations of the proposed model. The most notable suggestion was that an external body, such as tax preparers’ peers or an ombudsman be created to manage the redress process. There was prevalent concern about the timeliness of a redress process as it may affect the tax preparer’s livelihood. Other comments and concerns were:

• mediation should be used rather than a formal redress process;
• costs;
• the length of time the compliance rating would affect the tax preparer; and
• the redress process for EFILE could be sufficient.

In the Large Firms and Associations category, it was noted by numerous respondents that the oversight function and imposition of taxpayer standards and sanctions should be independent of the CRA and draw on stakeholders from government, tax preparers, professional organizations, and the business community.

One respondent suggested there should be a right of appeal to the court system to ensure sanctions have been applied fairly and uniformly.

The CRA is interested in feedback on the types of services that would be beneficial to individual tax preparers and tax preparation businesses, which would enhance the overall completeness and accuracy of tax returns.

Consideration of the specific needs of tax preparers is the focus of this consultation question as it relates to the preparation of high quality returns.

It is noted that there was a significant number of respondents who praised the CRA’s drive to electronic services and that Represent a Client is a very valuable tool for tax preparers.

Many suggestions were made by Individual and Small Preparers for enhanced services. In order of prevalence, these included:

• having access to all information slips online;
• having a dedicated enquiries line to allow registered tax preparers to reach experienced CRA staff to assist with technical issues;
• improving Represent A Client to include:
  • the ability to upload documents for items such as transit passes, child care expenses,
  • a central portal for all clients,
  • the ability to ask questions on behalf of their client;
• providing training to tax preparers;
• sending less pre or post assessing requests to tax preparers with a low error rate;
• communicating by e-mail;
• providing additional information on the notice of assessment to indicate the reason for a change in reported income;
• e-mailing tax preparers to highlight common errors;
• implementing bar codes on tax slips so that tax preparers can scan them into tax preparation software;
• communicating with the tax preparer prior to the issuance of a reassessment to ensure all the facts are known. Often a misunderstanding can be prevented with a phone call to the representative;
• improving the CRA search engine;
• advising the tax preparer of client adjustments;
• providing pre-populated returns;
• allowing e-file for prior years;
• providing a client’s risk rating to the tax preparer;
• enabling tax preparers to disassociate from a former client;
• having a tips line to report poor tax preparers;
• creating an index of income tax rulings; and
• providing legislative updates to tax preparers.

In the Large Firms and Associations category, there were also numerous suggestions for improvements. These included:

• give tax preparers online access to T3/T4/T5 slips and similar information;
• enhance online services such as e-filing prior years;
• expedite authorizations requested through Represent A Client;
• enable the electronic submission of all common individual income tax forms and elections;
• allow the optional electronic transmission of slips and other documentation;
• ease the late filing penalty under subsection 163(1);
• be sensitive to tax preparers’ work cycles;
• devote more resources to auditor training;
• promote CRA participation in educational initiatives;
• allow auditors discretion to use their own judgment;
• introduce a dedicated telephone helpline for regulated professional accountants and members and employees of organizations with similar standards;
• introduce staggered reporting and filing deadlines for information slips and tax returns;
• introduce a program of designated agents who would serve as relationship managers between the CRA and larger tax preparation organizations;
• simplify the initial tax preparer registration process to allow bulk registration;
• institute a pre or post assessment review rating system with a view to limiting reviews for those with low error rates;
• expand information provided through code 2139 to include the reason for the pre-assessment review;
• update tax preparers on common errors;
• enhance CRA technology;
• give tax preparers access to their employees’ compliance records; and
• standardize tax slips.

The CRA is interested in feedback on the compliance burden for individual tax preparers and tax preparation businesses associated with the proposed registration program.

The CRA expects that improved voluntary compliance and the filing of complete and accurate returns would reduce the number of required interactions with taxpayers who want to be compliant and, ultimately, reduce “red tape” for taxpayers.

The comments received from the Individual and Small Preparers suggested virtually an equal split between those who thought red tape would increase and those who thought it would decrease.

The most prevalent comments included:

• The RTPP will reduce red tape for compliant tax preparers and allow the CRA to focus on those who need education or sanctions.
• The RTPP will increase compliance but not necessarily the burden.
• The CRA should use a sound education and information sharing process rather than punitive measures.
• The RTPP may drive costs up if tax preparers incur a cost as a result of registration or increased expectations to verify amounts, which may lead to taxpayers doing their own tax returns and possibly increasing the error rate.

For the Large Firms and Associations respondents, one large tax preparation firm indicated that there will be an increase in red tape from the registration system. The focus of other respondents’ comments was related to the minimization of red tape through final program design and narrowing the definition of errors to those that are the responsibility of the tax preparer, with the specific exclusion of interpretational issues.