In my last post, I described the certification process for Enrolled Agents (EAs) and why it might be impractical and/or inappropriate to require that process of all paid preparers.
Volunteer Income Tax Assistance (VITA) volunteers have a very different certification process from the Enrolled Agent (EA) process.
Of course, a regulatory model designed for volunteer preparers is not perfect for paid preparers. For one thing, regulations for volunteer preparers are built on the premise that there is certain amount of conscientious public spiritedness among the volunteers, which may be a less appropriate assumption to make about paid preparers.
Moreover, as I've said before, the current VITA certification/regulation model doesn't work perfectly, even among the volunteer population for whom it was designed. There's certainly room for improvement.
Still, the current volunteer certification and regulation model has many appealing features which could possibly be adapted and modified to make it suitable for paid preparers. In addition, perhaps we can learn something by talking to long-time VITA site coordinators about the shortcomings of the VITA process which could help design a better process for paid volunteers. So I'll describe the VITA process below, with some remarks about how the VITA certification model might be adapted or applied to paid preparer regulation.
1) VITA volunteers must annually certify on CURRENT tax law before they prepare a single tax return for each year. The VITA certification test for 2009 will be available in late November or early December of this year, well before filing season. (By contrast, the EA certification test based on 2009 tax law will not be available until May 2010, two weeks after the 2009 returns are due!)
2) The VITA certification tests are available in three different levels: basic, intermediate, and advanced. Even the advanced level certification test leaves out many of the more esoteric topics that are included on the EA return.
For example, the advanced test does not cover topics such as representing taxpayers in an audit (which VITA volunteers are not allowed to do--in the event of an audit, we can refer our taxpayers to a nearby low-income tax clinic run by a law professor) or estate tax (anyone with an estate of a size large enough to require an estate tax return should certainly be hiring a suitably credentialed tax professional rather than using VITA services!)
The tests are far from perfect (every year, it seems there are one or more errata, which apparently also happens on the EA exam), and they are not designed to measure whether the VITA preparer has memorized every aspect of tax law. They are open book, which means that they are asking not whether the preparer has memorized all the rules for the current tax year, but rather whether she knows how to use the VITA provided resources to find the rules she needs to answer the test questions.
3) The IRS provides free interactive on-line training modules on their "Link and Learn" website for VITA volunteers. Although Link and Learn is designed for VITA volunteers, anyone with internet access can use them for free.
4) The VITA certification test can either be taken on paper or on the Internet, at the discretion of the site coordinator.
If the IRS wanted to require a paper version of a VITA-like test to paid preparers, it seems to me that it could easily engage the services of an experienced testing company like ETS or ACT to administer the test in empty high school and college classroom on weekend days in late fall and early winter, in a manner similar to the way SATs and the ACT are administered. The cost of such paper testing would be much less than the cost of the Prometric EA tests, just as the cost of paper-based SAT test are much less than the cost of computerized admissions tests.
Mass proctoring an Internet version of the test would be harder and more expensive, and probably impossible to do on the scale needed for all paid preparers, at least in the short run. There are technological approaches, similar to those used by some distance-learning classes at some remote locations like military bases, which might be feasible down the road.
5) Another difference between the regulation of EAs and the regulation of VITA volunteers is that IRS employees typically visit each VITA site one or more times each season to do so-called "site reviews."
Some of these site review visits are unannounced drop-in visits, and the IRS site reviewer will check to make sure that the site is following a variety of regulations. In many ways, these visits are similar to those a health inspector would do at a restaurant. For example, the IRS visitor will make sure that the site has a secure locked cabinet to safeguard taxpayer records, that there is a shredder on the premises, that the site coordinator has records showing that all preparers on duty are certified for the level of returns they are doing, that preparers have appropriate reference materials (Pub 17 and Pub 4012) available, that preparers are adhering to Quality Review guidelines, etc.
The visiting IRS employee will randomly select a taxpayer's return just after it has been completed (but before it has been returned to the taxpayer for his review and signature) for a special quality review as part of the site review process. This is considered to be an inspection of the VITA site preparer's process and accuracy rather than an audit of the taxpayer himself. The IRS employee records information about the inspection in a way that preserves the anonymity of the taxpayer's identifying information, and only captures information about the volunteer preparer's mistakes, if any. (Of course, the IRS inspector makes sure to provide appropriate advice to the preparer about how to correct the return before he presents it to the taxpayer for review and signature.)
As far as I can tell, no paid preparer (whether enrolled or not) receives this type of IRS scrutiny.
I would guess that most paid preparers would consider such a site review to be a serious invasion of their privacy and autonomy, but VITA volunteer preparers cheerfully accept such oversight as part and parcel of doing the most accurate possible job for the taxpayers we assist.
Probably the very first professional chef to have a government health inspector invade his restaurant kitchen objected to that invasion as well, but chefs have learned to put up with it.
In the case of an attorney tax preparer, there might also be a question of attorney-client privilege to consider during a site review. Blacking out the names, SSNs, and other identifying details on a tax return and its supporting documents before handing it over to the site reviewer for her review might be one way to address this concern.
6) "Secret shopper" visits are different from the above-mentioned site reviews. The IRS and the Treasury Inspector General for Tax Administration (TIGTA) actually already does these types of reviews on both paid preparers and VITA volunteer sites. In such cases, a "secret shopper" who is actually an IRS or TIGTA shows up unannounced pretending to be a taxpayer wanting his return filed. He covertly observes any inaccurate or unethical behavior by the preparer.
Such secret shopper reviews are only practical for a very small sample of preparers, whether paid or not, because they are very time-intensive.
By contrast, I believe the IRS manages to conduct site reviews on all new VITA sites that open each year (as well as periodic revisits during subsequent years, with more frequent follow up visits directed at sites with problems.)
As I said, the VITA certification and regulation model isn't a perfect one, even for volunteers. One very important aspect of the VITA model is that it designed to carefully circumscribe the types of returns that each type of preparer can do. All VITA volunteers sign agreements with the IRS promising to restrict their practice within the limits of their certification.
A VITA preparer who is only certified at the Basic Level knows that she should not do any returns with any type of small business income, for example. If a taxpayer comes in with an IRA withdrawal or pension income, she knows she should refer that individual to another VITA preparer with a higher level of certification. A VITA preparer who is certified at the Intermediate Level or Advanced Level knows he can do Schedule C-EZ returns for some very simple kinds of sole proprietorships, such as a person who babysits, mows lawns, or tutors occasionally, but he also knows he should refer any kind of complicated return involving inventory, employees, or depreciation to a professional preparer with appropriate credentials such as a CPA.
So an important aspect of the VITA certification process is that it is designed to make each preparer aware of the limits of their knowledge, and also to make the site coordinator (who should, ideally, be certified at the advanced level) aware of the limits of the knowledge of the preparers who work under her.
I have an Advanced certified preparer for all four years that I've run Union College's VITA, but I am acutely aware of my own limitations. When taxpayers come in with situations beyond those for which I am certified, I refer them to enrolled practitioners.
The ideal certification process for paid preparers should probably incorporate at least some aspects of the Enrolled Agent process as well. For example, EAs must undergo FBI criminal record checks as well as a check to make sure that their own personal tax records demonstrate their own compliance with tax law. Currently, VITA site coordinators and electronic return originators undergo such checks, but rank and file VITA preparers do not. However, I actually think it would be a good idea for all VITA volunteers to pass FBI criminal record checks and IRS compliance checks, because all of us are working with sensitive taxpayer information.
None of this will come free. Restaurant inspections don't come free either.