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October 7, 2010

Internal Revenue Service
CC:PA:LPD:RP (REG-138637-07), Room 5205
P.O. Box 7604
Ben Franklin Station
Washington, DC  20044

Re:  Regulations Governing Practice Before the Internal Revenue Service (REG 138637-07)

The National Association of Enrolled Agents (NAEA) appreciates the opportunity to comment on the Proposed Rule that would amend provisions of Circular 230 (31 CFR Part 10) relating to standards and provide new rules governing the oversight of tax return preparers.  NAEA is the only organization solely representing the interests of 46,000 enrolled agents (EAs). We are committed to increasing the professionalism of our industry, increasing the integrity of the nation’s tax administration system, and protecting the representation rights of taxpayers.

Enrolled agents have for years supported efforts to bring order to the chaos all too easily found in the return preparer community. We supported Commissioner Shulman in his initial efforts and applauded his conclusions in his January 2010 Return Preparer Review, including elements unpopular with many in the industry, such as mandatory competency testing and continuing professional education for all non-legacy Circular 230 practitioners¹. 

The proposed amendments operationalize recommendations in the commissioner’s January 2010 report.  For the most part, we believe the amendments are reasonable and necessary. Proposed changes that hold firm on grandfathering, clearly distinguish between the tax code civil penalty provisions at §6694 and the professional standard requirements in §10.34, and provide for a public list of all enrolled agents, for instance, are all positive steps.  At the same time, we also believe that this iteration of rulemaking presents room for improvement with respect to limited practice, electronic filing and disreputable practice, and tightening oversight on education providers.

 
We respectfully offer these comments on the Proposed Rule: 

• Definitions.  While we understand that defining the preparation (and filing) of documents as practice is what allows the agency to use Circular 230 as a vehicle to exercise authority over those return preparers who are currently unenrolled, we have some concerns with respect to changes to paragraphs (a)(4) and (a)(5) of § 10.2.
  
  The term “practitioner” historically has denoted someone with unlimited rights to prepare and represent taxpayers before the agency and was a term of art used to distinguish this set of professionals from individuals who were limited in their representation rights. As we move forward, we remain concerned that the distinction between those with full rights and those lacking full rights may become cloudy.
  
  The agency clearly states its intent in §10.3(f), “Practice as a registered tax return preparer is limited to preparing the tax returns, claims for refund, and other documents for submission to the Internal Revenue Service.” Given that practice for registered tax return preparers is limited, we suggest the agency retain language in §10.2(a)(4), in which it defines practice before the agency, but edit §10.2(a)(5) to state, “Practitioner means any individual described in paragraphs (a), (b), (c), (d), or (e) of §10.3.” This will help clarify that practitioners represent clients while tax return preparers (as defined in §10.2(a)(8)) do not.
  
• Who may practice. In the preamble, IRS states, “A registered tax return preparer may prepare all or substantially all of a tax return or claim for refund, and sign a tax return or claim for refund, commensurate with the registered tax return preparer’s level of competence as demonstrated by written exam.” [Emphasis added.] We suggest appending the “commensurate with…” language to the end of the first sentence in §10.3(f)(2), in which IRS establishes the limited preparation rights of registered tax return preparers.
  
  Consistent with our long-held position that tax professionals ought to demonstrate competency with respect to the services they provide and given that the individual tax return examinations do not include representation issues, we urge the agency to strike the fifth and sixth sentences in §10.3(f)(2). We provide more detail on this issue in our comments on § 10.7 (limited practice) on pages 4 and 5.
  
• Eligibility to become an enrolled agent, enrolled retirement plan agent, or registered tax return preparer. We note the lack of a carve-out based on an individual’s past tax return preparation experience. We applaud the agency for its commitment, under some amount of pressure, to the proposition that experience is no substitute for demonstrating competency.
  
  We have a question with respect to §10.4(a), which states the Director of the Office of Professional Responsibility (OPR) “may grant enrollment as an enrolled agent to an applicant who demonstrates special competency in tax matters by written examination…” Aspiring enrolled agents must pass all three parts of the special enrollment examination (SEE). The online SEE registration requires a PTIN and once the registered tax return preparer tests are available, PTINs will be unavailable except to those who have passed one of the registered tax return preparer tests or to those who are legacy Circular 230 practitioners. Does IRS intend to require enrolled agent applicants to pass at least one of the registered tax return preparer tests before sitting for the SEE?
  
  We are not troubled in general by enrollment of former IRS employees based on that person’s past service and technical expertise. Nevertheless, we question why enrollment (as provided in §10.4(d)(3)) as an enrolled retirement plan agent (ERPA) is necessarily limited to qualified retirement plan matters while enrollment as an enrolled agent may be limited to “matters only of the particular specialty or only before the particular unit or division of the Internal Revenue Service for which the applicant’s former employment has qualified the applicant.”  The ERPA restriction appears consistent with the notion that those who practice must demonstrate competency. We suggest modifying the first sentence of §10.4(d)(3) as follows: “Enrollment as an enrolled agent based on an applicant’s former employment with the Internal Revenue Service will be limited to permit the presentation of matters only of the particular specialty or only before the particular unit or division of the Internal Revenue Service…”
  
  IRS also requested comment on whether a tax return preparer who solely prepares tax returns other than Form 1040 series returns (e.g., Form 941 or Form 706) should be permitted to prepare these returns without successfully demonstrating competency. In the main, we believe competency through examination is a cornerstone of the entire effort to provide taxpayers with assurance that the person they paid to prepare a return is at least minimally competent to do so.
  
  We suggest that the Form 941 be included in one of the proposed individual return tests (probably the more basic of the two), especially with respect to employee classification and proper treatment of fringe benefits.  The challenge for IRS, however, is determining what accommodation (if any) to offer the person who prepares only payroll returns (e.g., Forms 940, 941, 944, W-2, and/or W-3). Should that person be required to take 15 hours of CE annually? Should he/she be required to have three hours per year of federal tax law updates? As to the Form 706 (and Forms 709, 1041, 1120, 1065, etc.), we suggest limiting preparation of such advanced returns to the legacy Circular 230 practitioners.
  
  
• Application and renewal procedures.  The agency, in §10.5(d)(1), clearly explains the scope of the federal tax compliance check, and in particular makes clear that someone who “has made proper arrangement” with IRS for the payment of federal tax debts would be considered in compliance.
  
  We believe IRS plans on issuing enrollment cards to ERPAs or enrolled agents and registration cards to registered tax return preparers. Section 10.5(d)(2) would be clearer if the first sentence were revised to read: “…the applicant will not be issued an enrollment card or registration card or registration certificate pursuant to §10.6(b)…”. ²
  
• Term and renewal of status as an enrolled agent, enrolled retirement plan agent, or registered tax return preparer.  With respect to enrollment cards and registration cards/certificates in §10.6(b), we ask the agency to be clear that registered tax return preparers receive registration cards, while ERPAs and enrolled agents receive enrollment cards. Further, we question why the agency will provide certificates to the registered tax return preparers but not to ERPAs and enrolled agents. Perhaps this is a drafting oversight on the part of the agency. Nonetheless, we believe that certificates for the practitioners already under the agency’s full control are in order and suggest they would help with future public awareness campaigns.
  
  We suggest that the reduction in continuing education (CE) hours allowed for course preparation is a significant retrenchment. The proposed §10.6(f)(2)(iii) caps the CE credit for course preparation at two hours for each contact hour, with a maximum of 4 hours annually for instruction and preparation. Why the change from the former rule? In the same vein, we were surprised by the decision to strike §10.6 (f)(2)(iv), which allowed CE credit for published articles and books. Given the tightening of the allowance for preparation and teaching, we suggest that IRS consider allowing two credit hours per year for published articles or books.
  
• Limited Practice.  While we note with interest—and approval—the removal of § 10.7 (c)(1)(viii), which grants limited practice rights to one who prepares and signs a return, we were disappointed to see the right inserted in § 10.3. More specifically, in § 10.3(f)(2) of the proposed regulations, IRS confirms a registered tax return preparer “may represent taxpayers before revenue agents, customer service representatives, or similar officers of the Internal Revenue 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.”
  
  NAEA has consistently held limited practice should be eliminated and we strongly agreed with the Service in an early 2006 proposed Circular 230 revision (REG-122380-02), in which the agency proposed withdrawing § 10.7 (c)(1)(viii). In explaining the proposal, IRS stated, “The proposed regulations revoke this authorization because it is inconsistent with the requirement that all individuals permitted to practice before the IRS demonstrate their qualifications to advise and assist persons in presenting their cases to the IRS.” [Emphasis added.]
  
  In our April 28, 2006 response, we emphatically agreed: “NAEA firmly agrees with the common sense conclusion that the current §10.7(c)(1)(vii) limited practice authorization is inconsistent with the requirement that ALL individuals permitted to practice before IRS demonstrate their qualifications to advise and assist persons in presenting their cases to the agency.” This association has not changed its position in the intervening four-and-a-half years.
  
  At the same time, we concur with the agency’s 2006 explanatory statement:
  
  “Individuals who prepare an original return [but are not permitted to represent] may assist in the exchange of information with the IRS regarding a taxpayer’s return if the taxpayer has specifically authorized the preparer to received confidential tax information from the IRS.  Revocation of the authority for limited practice will not preclude a return preparer from assisting a taxpayer in responding to questions regarding the taxpayer’s return.”
  
  We believe this statement applies to the current environment, in which a registered tax return preparer would be able to accompany a taxpayer to an examination (provided the taxpayer authorized IRS to disclose tax information to him/her).
  
  If we expect preparers to demonstrate competency, is it logical to allow registered tax return preparers to: negotiate with IRS on behalf of a taxpayer during an examination; bind a taxpayer to a position during an examination; or agree to any adjustment to a taxpayer’s reported liability? 
  
  Further, NAEA urges IRS to take this opportunity to clarify that registered tax return preparers may not bind a taxpayer to an agreement when the taxpayer has a balance due to IRS (e.g., negotiating installment agreements, negotiating offers-in-compromise (Form 656), demonstrating that an account is currently not collectible (aka, in Collection Status 53)) or exercising so-called “check box” authority from negotiating installment agreements.  Notwithstanding IRS’ assertion that a taxpayer issue is not in Collection prior to the issuance of Notice 504 (i.e., during Notices 14, 501, and 503), all such dialogue constitutes representation and should be treated accordingly.
  
  Completely withdrawing the §10.7(c)(1)(vii) limited practice authorization would be a giant step toward bringing consistency to limited practice rights.  With the withdrawal of §10.7(c)(1)(vii), only two classes outside of legacy Circular 230 practitioners would be permitted to practice: those representing themselves and those outside of the country.³
  
• Continuing education programs.  Current language within Circular 230 grants sweeping authority to OPR to provide oversight of CE sponsors, and we encourage and applaud the agency’s efforts to be certain that education programs are appropriately rigorous. 
  
  OPR already has latitude in administering the sponsoring program to maintain adequate control over continuing education providers—and we believe this is the proper oversight framework (and that OPR is the proper office for this oversight).  We do not believe the proposed shift from a sponsoring organization to a qualified program advances our shared goals.  We respectfully submit that should the Service both: a) provide sponsors better guidance, including best practices; and, b) perform random audits (and exercise authority to suspend or terminate sponsoring agreements), it will achieve the level of control and quality desired. Further, we believe if OPR added an annual reporting requirement for program sponsors (e.g., what classes were offered, how many CE hours were provided, number of participants, etc.), it would be better positioned to provide oversight.
  
  Requiring pre-approval of each program creates a substantial burden not only for OPR but also for providers. Frankly, we are concerned that the practical implementation realities endanger the overall integrity of the program.  We anticipate the proposed changes will unduly increase the cost of CE, create an environment in which smaller providers may be unable to meet the additional requirements for pre-approval of each program, and that ultimately enrolled agents will have a more difficult time finding appropriate education.
  
  The proposed changes carry a number of logistical challenges as well.  Planning far enough in advance to acquire pre-approval may stretch the resources of providers, and require a greater level of sophistication than currently exists⁴. Enrolled agents who plan ahead will need to be satisfied with the assumption that approval will be granted, and may then be left in the lurch if the company does not follow through with the process with OPR.  In proposed § 10.90(a)(6), IRS expresses its desire to publish “programs granted status as a qualified continuing education program”.  Assuming that OPR’s intent is to maintain a current list of qualified programs, the timeliness that such a list will require on the part of both the provider and OPR is considerable.  If IRS insists on qualifying programs (rather than focusing on sponsoring organizations), we strongly support the idea of a published list of educational programs, but suggest that an enrolled agent who wishes to use such a roster to guide his/her educational decisions must be able to rely on its accuracy and timeliness. 
  
  The proposed changes may also unintentionally shift the balance between in-person seminars and online, correspondence and individual study programs.   The cost and effort to produce an in-person seminar under the new guidelines requiring pre-approval will skyrocket, and the return on investment will be reduced thus creating a negative incentive.  Other educational formats offer a longer shelf life, which minimizes the impact of the proposed regulations in comparison to the increase we foresee in the in-person costs.  Although proposed § 10.9(a)(iii) eliminates the reference to professional organizations or societies formerly included in § 10.6(g)(iii), we believe there is a distinct value in the face-to-face exchange of ideas. 
  
  We join with IRS in our desire for an effective program that assures quality education for enrolled agents.  NAEA and our affiliates are dedicated to providing that education and in meeting any requirements that OPR establishes, but we trust such a program will not become so arduous that it has the opposite effect of reducing the number of providers to only the largest, and that options for enrolled agents become limited.
  
• Solicitation. The proposed changes to §10.30 add a restriction for registered tax return preparers. Some enrolled agents have expressed concern that the proposed acceptable description for registered tax return preparers using the word with may imply a closer relationship with the agency than exists. We suggest the following revision: “An example of an acceptable description for registered tax return preparers is ‘designated as a registered tax return preparer by the Internal Revenue Service.’” [underscore for emphasis]
  
  Otherwise, we request revisions to provide parity to the prohibition of the use of the term “certified.” More specifically, we suggest striking registered tax return preparers from the second sentence and inserting a new third sentence: “Further, registered tax return preparers, in describing their professional designation, may not utilize the terms “certified,” “enrolled,” or “agent” or imply an employer/employee relationship with the Internal Revenue Service.”
  
• Standards with respect to tax returns and documents, affidavits and other papers.  We applaud the Service on its efforts to make a clear, cogent and reasonable distinction between the manners in which the tax code civil penalty provisions at §6694 and the professional standard requirements in §10.34 will be administered.
  
  Enrolled agents will know §10.34(a) applies to a practitioner regardless of whether there is a final determination that no understatement of liability exists. Further, they will know that a pattern of conduct will be considered when determining whether a practitioner acted willfully, recklessly, or through gross incompetence. More importantly, multiple practitioners from the same firm may be disciplined under §10.34 should their conduct in connection to the same act fail to meet §10.34 standards of conduct. 
  
• Incompetence and disreputable conduct.  The proposed regulations expand the definition of disreputable conduct to include willful failure to file electronically when the preparer is required to by the federal tax law.  To the extent IRS believes it necessary to elevate such behavior to a level allowing for preparer penalties, the proscription belongs in Title 26, not in Title 31.
  
  Notwithstanding the reasonable cause provision, we believe the failure to file returns electronically does not rise to disreputable conduct and suggest the provision be struck from §10.51. 
  
• Roster.  The proposed regulations clarify in §10.90 the Service’s intent to make available to the public a list of enrolled agents (and other practitioners and preparers regulated directly by the agency). We would have appreciated a statement in the preamble providing more detail on when the agency expected to have the list of enrolled agents available as well as clarifying that the agency intended to make the list available on its website and assuring that an electronic list of enrolled agents will not significantly lag a list of registered tax return preparers.
  
  We have long advocated for an online list of enrolled agents that is available to the public. This would provide the public with the ability to verify that someone holding him/herself out as an enrolled agent was in fact an EA in good standing. The current process, requiring a taxpayer to call the OPR Enrolled Practitioner Program, is cumbersome and non-intuitive.
  
  We would like to clarify that merely registering on the PTIN online system will not in and of itself be enough to be listed on a roster as a registered tax return preparer. Section 10.4(c) indicates that one is not designated a registered tax return preparer until the person demonstrates competence, possesses a PTIN and has not engaged in any disqualifying conduct.

We also would like to take a moment to emphasize our strongly-held belief that the success of this program hinges on a successful communications strategy and enforcement regime. The Circular 230 proposed amendments clarify the tax code civil penalty provisions at §6694 and the professional standard requirements in §10.34, significantly tighten requirements for continuing education providers, and otherwise strengthen the agency’s hand with respect to enforcement. At the same time, we remain concerned that the agency has not completed a robust communication plan, one focused on the preparer community, IRS employees, as well as the public at large. If the agency does not have a plan, we cannot help but be concerned that its efforts, at least through the first filing season will be ad hoc at best. Not to put too fine a point on it, we suggest the agency has an obligation to publicize the new return preparer requirements and an obligation to distinguish between the new return preparers and the legacy Circular 230 practitioners. We look forward to seeing, posthaste, significant progress in this dimension.

Finally, I would like to once again request that the agency, in its writings, treat legacy Circular 230 practitioners equally and cease shorthanding enrolled agents from statements in which they should be included. The preamble to the proposed amendments twice references “attorneys, certified public accountants, and other specified tax professionals” and on another occasion states “attorneys, certified public accountants or others currently authorized to practice before IRS.” In each of these cases, enrolled agents should have been included. While the section in question was peripheral (the regulatory assessment under Executive Order 12866), we assert there was no reason to cleave EAs from their legacy Circular 230 brethren.

NAEA appreciates the opportunity to respond in writing to the Circular 230 Notice of Proposed Rulemaking and looks forward to the October 8th hearings at which time we expect to further explain our positions.

Sincerely,

Gina Jones, EA
President

¹Throughout this document, we use the term “legacy Circular 230 practitioner” to refer to enrolled agents, attorneys, and certified public accountants, the full-service tax practitioners also governed by prior versions of Circular 230.

²For consistency and clarity, we recommend the same revision be made to §10.6(b).

³Those granted the limited practice rights in §10.7(c)(1)(ii-vi) are essentially pro se, and while as an organization of those who specialize in practice, we do not recommend that course of action, we certainly recognize it as a fundamental right.  Section 10.7(c)(1)(i) is an extension of pro se action as it permits parents to represent minors and children to represent elderly/infirm parents. 

⁴In some cases, for instance tax law update courses for 2011 given the specter of significant tax law changes in November or December of 2010, it could be impossible to apply for approval in a timely fashion.