New York State Proposes Regulating Preparers

Tax preparers are beginning to respond to the recent proposal by the New York State Department of Taxation and Finance to further regulate paid preparers.

The department has proposed amendments to its Personal Income Tax Regulations and Procedural Regulations (N.Y. Comp. Codes R. & Regs, tit. 20, proposed Part 2600) to impose minimum standards on who can become a return preparer, a continuing education requirement and a competency exam.

New York, which for five years has required preparers to register with the state, proposes that preparers meet applicable IRS requirements; take a 16-hour basic tax course if new to preparing New York State personal income tax returns; pass a New York State competency exam; and take four hours of CPE in New York State personal income tax topics annually.

The department estimates that beginning preparers will incur an initial annual cost of $605 for CPE tuition and time spent completing CPE coursework. Beginning preparers who have satisfied their initial annual requirements, as well as experienced preparers, will pay an estimated annual cost of $151. There will also be a one-time additional cost of approximately $31 for time spent completing the competency exam, plus a fee for taking the exam.

New York expects to spend some $800,000 to start the regulation, according to state estimates.

The proposed ruling comes as the IRS appeals to reinstate preparer regulation nationwide.

“It was just a matter of time before states started imposing their own rules. States will have a much easier time withstanding court challenges,” noted one writer on the ATX Community chatboard.

“The rule protects [New York State] taxpayers from unscrupulous and incompetent tax preparation without imposing undue burdens on tax return preparers,” reads one supporting document for the Albany proposal. “The education, testing and disciplinary provisions will enhance the competency and integrity of the tax preparation industry.” This and other documents also call paid preparers “commercial tax preparers.”

As with the IRS RTRP proposal of last year, attorneys, Enrolled Agents and CPAs and their employees who prepare returns under their supervision are not considered return preparers for the purposes of these proposed rules.

“Duh!” wrote Robert D Flach on his blog The Wandering Tax Pro. “Enrolled Agents are certainly tax return preparers, and attorneys, public accountants, CPAs and ‘supervised’ employees thereof may very well be tax return preparers -- but apparently not as ‘commercial tax return preparer’ is defined in the law.”

“The only purpose of [this proposed rule] is to extort money,” Flach added.

Noted another ATX commenter, “What this will do is drive away incompetents or preparers who refuse to follow the competency rules, thereby reducing the number of paid preparers and it will drive up the cost of tax prep for the public. The silver lining for competent, regulated tax pros is more income as a result of higher fees.”