There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.
Roger Harris: Hello again everyone. It's another federal tax updates podcast. This is Roger Harris and as almost always, he does slip off every once in a while Annie Schwab. Annie, first of all, as we record this, this is Saint Patrick's Day. So happy Saint Patrick's Day.
Annie Schwab: Same to you. I know. I I'm sure I'll get pinched because I'm not wearing green at the moment.
Roger Harris: Yeah, [00:00:30] I did dig up something with green in it. Um, you know, for people in our profession. Saint Patrick's Day is not something we get to spend a lot of time celebrating. It's kind of an afterthought. And things our friends do that also kind of gives you, as we, I guess, need to always do. Now, when we record these things, it gives you a marker as to when we're recording this, because things are changing so rapidly that, uh, we may not even finish the podcast without it being out of date, but this way, depending on when it airs and when you listen, [00:01:00] if, uh, we'll try to let you know if something has changed. But, uh, keep in mind this is Monday, March the 17th, and this is what we know as of today. And who knows how long it'll be before.
Annie Schwab: Some changes.
Roger Harris: Or something changes. Uh, but we are excited today. It's not just Annie and I. We have a guest that's joined us who has agreed to put their life in their hands and be a guest on our podcast. And, um, it's someone I've known for [00:01:30] a while. But, Annie, why don't you introduce our guest to joining us today?
Annie Schwab: Sure. It's my pleasure to introduce Bob Kerr. Uh, he spent his entire career focused on tax administration. Over a dozen years at the IRS. He held various positions largely in compliance and technology research. Um, he held a senior leadership policy position at NEA uh, which is a professional association for tax practitioners. Uh, he is now the principal of his own firm, Career Counseling [00:02:00] LLC, which allows him to serve as a tax administration, tax policy and public policy thought partner to his individual clients, and he pursues a long held interest in education and public speaking. He often is quoted in tax press, and has recently been published in the Tax Notes Today and Bloomberg Tax Highlights. So it is my pleasure to have you here today. Welcome.
Bob Kerr: Thank you Annie. Thank you Roger.
Roger Harris: It's Bob and I [00:02:30] have talked many times. This is the first time we've ever been recorded. So we'll have to make sure we keep it straight because. And we've asked Bob to come because. And we teased this on our last, um, podcast is there are some proposed changes to circular 230 that potentially will impact all of us and some significantly. And, and I thought we would bring Bob in because he was. When was the hearing was again? We're on [00:03:00] the 17th. The hearing was last week, Bob, that the on the proposed guidance.
Bob Kerr: The hearing was two weeks ago. Was on Thursday. Two weeks. So ten, ten days ago.
Roger Harris: Okay. Bob attended so he he can tell us how that went. And we'll talk a little bit about it. And, and I guess the first thing we need to do, though, I think everyone who listens to this probably understands what circular 230 is. I'm going to ask Bob in a minute to give a little background on it, but it's kind of like our playbook. It's the rules we have to follow. [00:03:30] You know, the guidance we have to pay attention to and was probably in great need of a some updating. It's been updated periodically, but it's not something that changes every week year. In some cases it goes for a long time, but it's our rule book. And so when they propose to change it, it's important to us to understand maybe what the rules are today. If we don't know and certainly understand what the rules might be going forward. So, um, Bob, I know because you're a much more student of [00:04:00] this than I am. Talk a little bit about the background of 230 kind of how often it changes. When's the last time it changed? And then we'll kind of get into some of the, the issues that are relevant.
Bob Kerr: Sure. Roger and I, before I go into the sort of take the dive, I think the, the high level issue to keep in mind is that 230 is, is regulations on or restrictions or regulations on practice before the agency. Right. And three and in our world, [00:04:30] although there are more than three practitioners, the three practitioners for tax professionals that we think of most often are enrolled agents, which you and I are both enrolled agent. Cpas and attorneys are governed by the rules of practice. Um, well, they're within the most recent changes. Proposed changes to circular 230. We often we also see a bit of ink spilled on on appraisers, which is important for some folks [00:05:00] in the world of tax. It's not hugely important for a lot of people that I know. They also belong in circular 230. So as I said, circular 230 is is governance practice before the agency last the last revision that published was in June of 2014. So that was going on 11 years ago now as you suggested, as when you handed this over to me. The revision is is long [00:05:30] overdue. We've been asking, you know, folks who think about these things have been asking for, for, for some period of time. Um, largely because the last revision to circular 230 included additions with respect to, um, the registered tax return preparers, which most, you know, there'll be people, people listening to this who You weren't even tax professionals when this was a thing, but it was IRS failed effort at, um, looping [00:06:00] in all tax preparers, uh, you know, requiring or licensing all tax preparers. Um, so there are some legacy issues within certain of 230 that have been, uh, as they say in the military OBE or overtaken by events.
Roger Harris: Right? Yeah. Um, I think one thing we have to remember that and that the court case. Nancy, you can speak to this, the loving case. You know, we had that I don't know how long before from [00:06:30] the IRS trying to regulate return preparation until loving. I guess we had it for about a year, if my memory serves me correct. I don't know that. Don't know that it matters. But it lasted for a while and then loving kind of kicked it around because. Because any. I guess the first thing people need to understand is return. Preparation is not regulated.
Annie Schwab: No it's not. And it hasn't been. I mean, technically you could someone could hold themselves out as a tax preparer without any credentials, [00:07:00] any testing. And it happens quite regularly. And I think most I mean, there's not I can't think of too many professions that have that. And insurance agencies I mean real estate agents, I mean all of these professional, you know, associations are involved with some sort of testing or regulations, best practices, those kinds of things. And I think circular 230, like you said, is our playbook. But [00:07:30] it not only is probably outdated, but also is just not strict enough for the profession.
Roger Harris: Yeah. And I think that's one thing we have to keep in mind is, as Bob mentioned, this is practice before the IRS. Not preparation of tax returns. So there's going to be things that kind of creates some interesting dynamics that you can prepare tax returns and basically not have to worry about it. But if you want to represent someone before the agency, no matter [00:08:00] who you are, you have to follow some rules. So it's still an interesting dynamics. And I and I guess that there seems to be before we get into 230 some new activity, Congress is talking a little bit about perhaps putting some sort of oversight, regulation, licensing, you know, registration, whatever you want to call it, on tax preparation. And Bob, kind of what's your opinion of that? I think you you've spoke on this a lot, and I think it's important we understand this before we jump into 230 [00:08:30] and what it does and who it covers.
Bob Kerr: Sure, sure.
Roger Harris: And you can separate your personal from your organization.
Bob Kerr: I pause there I'm. This is the look of Bob being conflicted. Um, professionally, I, I worked for many years when I was with the Association and one of the enrolled agencies priorities from, I don't know, 2004 or so was to to bring everybody [00:09:00] into the fold. There was a sense that we were in the world of tax prep. We were on an uneven playing field. So those who like enrolled agents who were required to, uh, require to have education, continuing education required to demonstrate minimum competency in a sort of a broad fashion. Um, IRS made the run at that in 2011 or so. Was the sort of the beginnings of that. Um, the [00:09:30] a lawsuit, as as often happens here in your nation's capital came down, uh, loving versus IRS. The agency lost rather decisively in early 2014. So it was a short window in which IRS attempted through circular 230 to loop in all prep, all tax prep underneath the umbrella of circle. 230 um, the the the theory on on minimum standards, [00:10:00] which I think is the nomenclature that a lot of folks who are interested in it use simply because regulation will will how do I want to say this? It will disenchant at least half of the people who are sitting on Capitol Hill, because while regulations are bad, so will trigger a reaction. Yeah. So we euphemistically just go with minimum standards or something of that sort. Right. Um, so inside baseball for for all, for all the, all the listeners out there. Um, and the notion is that when you, when you bring everybody [00:10:30] in, you'll have higher quality, better returns with, with less mischief going on. And I and I get it and I understand how folks might draw that conclusion. I think the real pushback on it is that if I were to wake up every morning and look at myself in the mirror and say, Bob, you handsome devil, let's go create some really bad tax returns today. The fact that there were some sort of minimum standard regime out there would not, would not for a moment.
Roger Harris: Stop. [00:11:00]
Bob Kerr: You. You know, you cool my ardor for preparing mischievous, mischievous returns. So there is this this question of, you know, are we are we simply just making it more difficult, or are we making it, in fact, more expensive? You know, the sort of the that view of the world is, do we really need to make erect hurdles to entry into the business, or is there some other way in which we can ask folks to demonstrate their bona fides? One of them could be, frankly, [00:11:30] that IRS could create a voluntary program, and we can all then put up our credentials, whatever they are. And then the, the, the frame for this could be you should seek somebody who's someone who's licensed, and if you don't, then you know, there's, there's a bit of of of caveat emptor to it.
Roger Harris: Sure. So um, and do you want to give us your opinion before I give you mine?
Annie Schwab: I mean, I'm a CPA and I and I jumped all the hurdles. Um, [00:12:00] I definitely, you know, I may maintain all my, my CPE, and I hold my license out, and I follow all the rules, and and I, I hope for the public that whomever they're seeking tax assistance from is knowledgeable, um, honest and understands the, the tax law. I mean, it's a very complicated thing. Um, so in some form of fashion, there has to be a way for, you [00:12:30] know, Mr. Joe Smith on the street to feel that he's getting what he's paying for and is getting adequate tax assistance. Um, when he goes to prepare. So, um, I mean, I'm for it. I guess it just how to make it happen.
Roger Harris: Yeah.
Annie Schwab: Yeah, yeah, yeah.
Roger Harris: And nothing's perfect. Look, I mean, just making somebody sit through a CPE course, right? First of all, that means they're awake the whole [00:13:00] time if they get anything out of it. I mean, I've been in many courses where I've seen people reading newspapers, taking a nap, and yet somehow not.
Bob Kerr: Everyone's as engaging as we are. Roger this. It's sad, but true.
Roger Harris: Yeah. At the end of the day, it comes down to, you know, knowing that I think the public probably assumes there's some sort of minimum standards we have to meet, which is not true. But again, CPE is not perfect. Nothing's perfect. So but anyhow, that's a long lead in to what [00:13:30] we're here for. Just to to understand that when.
Bob Kerr: Digression would be my middle name if it weren't something.
Roger Harris: Else. So we're not talking about return prep here. We're talking about practicing before the IRS.
Bob Kerr: So representation.
Roger Harris: Representation. And that's different than, than Prep. And uh, that's where it, that's. Well I think the IRS would like it to be the same. But loving pretty much said nope, it's representation not preparation. And that's what we're doing. [00:14:00] We're going to go through. We'll probably never get through all the proposed guidelines. So we Bob tried to help us target some of the things that we think will impact or be of most interest to most of the listeners, and where there has been some proposed changes. And I think the first thing he put on his list, which I think maybe was, uh, brought to our attention with all the IRC stuff that happened during the pandemic was contingent fees. So, [00:14:30] um, what are the rules today? Let's start with what are the rules today for contingent fees per circular 230. And then what does it do differently? Because there's a lot of people doing things that maybe we think are contingent fees that really aren't. And I think last time we discussed this and we talked about the fact that just charging a percentage doesn't [00:15:00] make it a contingent fee. Mhm. You know, it's got to be some contingent, uh, contingency result. Maybe that's where the number the name comes from. So Bob what did we learn. What is the proposal and how did the hearing go. Who's for it. Who's against it. I think you'll be a lot of people may be interested to see how the industry reacted to what the IRS is saying.
Bob Kerr: Sure. I contingent fees were a [00:15:30] significant issue at the testimony. And also when whenever IRS puts or whenever IRS Iris puts out proposed regs, it asks. It provides an open period for public comment. So. So when Iris dropped these proposed regs in late December it starts the clock. There's a 60 day clock for for comment. And then after the comment period closes I think it was ten days later, I don't recall I didn't [00:16:00] count on my fingers. Um, then there's the public hearing for those who want to testify. So just to sort of get the cadence here, when we if we look at the, the, the submitted, the formal comments that came in, I expected to see and I did see quite a few people weigh in and some fairly heavy hitters weigh in on contingent fees. And I think the framing this is important. What what Iris has done within [00:16:30] the proposed circular 230 is that it has actually it's done two things, the first of which is that in circular 230 right now. And another thing, by the way, with the proposed regs out there, they're just proposed. That's all it means, is that IRS is thinking about doing something that looks like this. And until they are.
Roger Harris: Nothing's.
Bob Kerr: Until they're final. We work with the ones we have. So those are the June 2014 ones. And that's why perhaps to make [00:17:00] sure that folks don't throw out the old ones and treat these as if they're new.
Annie Schwab: Good point. Yes.
Roger Harris: So maybe they will be.
Bob Kerr: Well, yeah. You know more, you know.
Annie Schwab: Some version of it.
Bob Kerr: Some accounting term of art. It is more likely than not that these go right, right, right. Um, is it current circulation or 30 at 10.27 has a prohibition on unconscionable fees. Now, the problem with unconscionable fees is that it's [00:17:30] it's nobody can add it can. Well define what an unconscionable fee is. And I see Annie nodding her head. And I suspect that I'm not the only person who has gone off to the sea for, you know, our annual hours of ethics, whether we need them or not, to have folks talk to us about what is an unconscionable fee. So on the one hand, I are sort of frozen throws in the towel on unconscionable fees, and then [00:18:00] at the same time it creates it's, um, adds to 10.51, which is disreputable conduct. It adds to to 10.51 that the charging of contingency fees will be considered disreputable conduct. This has given a lot of of tax practitioners a severe case of the vapors. Um, they for a variety of reasons. And so what [00:18:30] at the at the testimony we had, Um AICPA is one of the real heavy hitter in the room. Wanted to talk about two things, one of which was contingent fees. So, uh, AICPA went at some length to discuss how useful and meaningful and important contingent fees are. The folks who have spoken out in in on the proposed contingent fees changes are. [00:19:00] I don't recall seeing anyone who said, yeah, that's a great idea. And certainly the bigger hitters were were uninterested. And and, you know, some folks decided they wanted to drape themselves in the flag practically and say, you know, this is preventing little old ladies from getting representation because they don't have the money type of thing. Um, so the frames varied, but the but the, the overall message is that we there's there we shouldn't [00:19:30] Be creating this world in which contingent fees are always disreputable conduct.
Roger Harris: And yet that's kind of what the proposed regs would, would do. I'm asking this. I'm not stating this, that if you charge a contingency fee by default, it is considered an unconscionable charge.
Bob Kerr: Right? Right. I mean, with and and again I the shameless self promotion, I've [00:20:00] taught an entire course that sort of unpacked this this proposed regs. And so within the if you look at proposed regs, at least in the circa 230 sense, it's interesting because it's this is I know, 72 pages of of stuff that cleared multiple, uh, lawyers desks at IRS and elsewhere. But there's, there's essentially 50 over 50, there's 50% of it is just sort of a narrative explanation. And then the last [00:20:30] 50% of it is is like a insert see type of thing, and it gives you the.
Annie Schwab: Actual.
Bob Kerr: Language. So within the explanation of the IRS or Treasury proposes, says that contingency contingent fee arrangements reflect conduct that is incompatible with ethical practice. Period. I mean, that's exactly what what Treasury says. And I worked with the New York Society of Enrolled Agents on this. And while that [00:21:00] your your median e is not doing a lot of work with contingent fees, we will do work with contingent fees. And certainly when it comes to some sort of rep work and it's their take was that listen, we categorically reject that blanket assertion. Now excuse me, we understand that adventurous positions on an original return of require IRS review and [00:21:30] probably audit to uncover an amended return or a claim from a claim for refund. Each of those requires an explanation, right? And so when we put in either of those, there is a requirement for an explanation. And so one of the arguments is like listen IRS and this sounds unkind. And perhaps I'll never be invited back to pageant after I say this. But there is a or for something else I say today still, um, they're.
Roger Harris: Not done yet.
Bob Kerr: You know. Or I could be bleeped, you know, [00:22:00] IRS do your job. I you know, it's on us because it asks for the explanation. We should provide the explanation and then it's on IRS to read the explanation and decide whether it wants to, you know, to issue the refund. That was that was the knee or roughly, I sort of paraphrasing and perhaps getting at least roughly right the position for the New York society. Does that make sense to you? Roger.
Roger Harris: Yeah, Yeah. I think the one thing that bothers me is an absolute. Because not everything [00:22:30] is exactly the same. You know, one situation, I mean, I could make an argument that a contingent fee is better for the taxpayer because, uh, it's somewhat based on results as opposed to me. I can rip you off without it being a contingency fee. And not all situations are going to be, you know, disreputable conduct. It may be the only way the taxpayer is willing to take the risk of entering into the situation is because they don't have to pay if something doesn't [00:23:00] happen. Now, I know, Annie, we had to deal with this in the IRC world where people were amending 941 and trying to figure out what to charge and how to charge. And, uh.
Annie Schwab: It was a broad spectrum of what people were charging to.
Bob Kerr: Believe it or.
Annie Schwab: Not.
Roger Harris: And the.
Annie Schwab: Risk associated with the time associated with or the.
Bob Kerr: Expertise associated.
Annie Schwab: True.
Roger Harris: Yeah. And yet you heard commercials on TV that were basically promoting contingency fees. [00:23:30]
Annie Schwab: Yeah, they were actually all the mills were running by contingency fee for sure.
Roger Harris: Yeah. You know.
Bob Kerr: If you've got a if you've got a phone, you've got a lawyer type of thing.
Roger Harris: Yeah. And I mean, it's like anything it's one of those things where I can see where it can be abused and it can, you know, again, I guess they're concerned that if I'm motivated to get more money, I take a more aggressive position. I do things that are more aggressive because I get a percentage of the win here if I win versus just somehow [00:24:00] being billing for my expertise or my time. But, uh, so it sounds like, uh, at least. And Bob, thank you for talking about the hearing process, because if you've never been to one, you understand a lot of people submit written testimonies. Not everyone comes and actually provides oral testimony. So sometimes I guess listening to the oral testimony doesn't necessarily reflect the majority of the opinions. It's only the opinions of those who chose to spend a dime [00:24:30] and come to Washington and speak their case. But it sounds like most of the associations kind of didn't like the.
Bob Kerr: Most of those who testified. In fact, everyone who testified and raised the issue of of contingent fees, you know, gave it the thumbs down. Um, and I and I Roger, you mentioned this as part of the intro to this section where you and in fact, you just discussed it as well. When you raise the employee retention [00:25:00] credit or ERC, the it feels a little bit to me. And perhaps I'm overly cynical here. It feels a little to me, like Iris is fighting the last war.
Roger Harris: Oh, yeah.
Bob Kerr: So and you know, or the horses out of the barn or whatever kind of, you know. And so now you want to shut shut the barn door. Well, but the horses are gone, so what I.
Roger Harris: Yeah I would agree. And I think that you're chasing after people who didn't create, didn't open [00:25:30] the door for the horses to leave. I mean, the people that that were doing all this to Annie's point, the mills, most of them aren't covered by circular. 230. So this is kind of irrelevant to them. I mean, it's, you know. Yeah. And you're right, it's almost too late.
Bob Kerr: So there's, there's.
Roger Harris: There's see where it goes.
Bob Kerr: Country song that says it's a little too late to do the right thing now. Yeah.
Roger Harris: There's a country song for everything, man.
Bob Kerr: There is. There is.
Roger Harris: There's at least a line in every country [00:26:00] song. Yeah. That will cover everything. Okay, so contingency fees, basically the industry right now is kind of thumbs down, um, on, uh, and.
Bob Kerr: Roger for, for once. And I'm sorry to interrupt. For what it's worth, I think that, you know, handicapping because that's sort of part of what I do for a living. Handicapping is. I would be surprised to see the final regs come out with the same, with the same [00:26:30] language as the proposed regs. And ordinarily the delta between proposed and final is very small. Um, folks weighed in heavily on it. And again I my handicap on this is that it's it it's not going to make it. And in part it's not going to make it because it's it. There were three law. There were three court cases that IRS lost between the last edition of circulated 230 and this one loving which was on [00:27:00] minimum required minimum standards.
Roger Harris: Um, right.
Bob Kerr: Uh, then originally which was a same year. Both of those are in 2014 originally was a contingent fee case and it so IRS is is being I think being too cute by half when it suggests when it doesn't directly prohibit contingency fees or contingent fees. It only says that we are going to call them [00:27:30] disreputable, and then we're going to spank you for being disreputable. We're not going to spank you for being for contingent fees, right?
Annie Schwab: Was that the case?
Bob Kerr: That was Ridgely. And then Sexton was the last of the trio. And Sexton versus Hawkins was a disbarred practitioner who IRS was trying to, uh, discipline and and and Sexton said, listen, I'm not I've been disbarred [00:28:00] yet, you know, go pound sand. Um, and, and and so in all those cases, Ridgely Sexton and loving all won and IRS, uh, Karen Hawkins and Ridgely versus Lew, it was the secretary of treasury. But it's all the same that the government lost in all of them.
Roger Harris: Three strikes. You're out. Let's move up some contingency fees. Irs is no good. Industry says [00:28:30] back off.
Bob Kerr: Um, I think that's fair. Yeah.
Roger Harris: You. This, I know, is something that really, um, you want to talk about. Lights. Lights.
Bob Kerr: Lights. My fire. Roger. Yeah.
Roger Harris: The limited practice discussion. What? What are what does. Circular two. What is it going to do in limited practice? And how does it impact the attorneys, the CPAs, the you [00:29:00] and I, the IRS. What does this what does this mean? Does it mean anything to us? What what is this limited practice discussion?
Bob Kerr: It doesn't mean anything to us. And you know, Roger, you know, you and I have kicked around many, many tax questions over the last 20 years. And, um. And the answer, of course, is it depends, because that's the answer to every good tax question.
Roger Harris: Every tax.
Bob Kerr: Question. Every, you know, every good tax question is it depends. If it's not a very good tax question I'll give you a quick answer. But that means it wasn't a very good question. It wasn't a very interesting [00:29:30] one at the very least. So in this case, limited practice is um, I sort of want to break out how it exists now. And so there is a section 10.7 of circular G30 that includes limited practice. Now limited practice is permitted right now in 10.7. But at its heart 10.7 essentially uh codifies [00:30:00] pro se representation which is Latin. You fancy Latin where you can represent yourself. If you ever take one of my courses, I will talk about pro se being Latin for my attorneys and idiot.
Annie Schwab: Okay.
Bob Kerr: But you know, which may be unfair, but there it is. You know, I'm always going to go for the laugh line. So. So there's a whole litany of things within 10.7 that's, that are carved out for limited practice, but they're just under the umbrella of pro se. So you have [00:30:30] you can you can represent your mom or your daughter. Right. It's just it's just sort of an extension of what representing yourself is. You can represent. Um, if you're a partner within a partnership or a trustee of a trust and these kind of extensions that just kind of make sense. There's a special. And I've never seen it used Roger, but that doesn't mean it hasn't been where the the commissioner him or herself. Can I dub the limited [00:31:00] practice for this particular case?
Roger Harris: You can do. Okay.
Bob Kerr: So, you know, it can be sort of a limited case special award. Um, but in none of those cases, is Iris losing this through line, which is that in order to be, you can represent yourself in these various flavors of representing yourself or you. You may be represented by a third party, which is a practitioner, which is an E, a CPA [00:31:30] or an attorney. What IRS is doing here is it is trying to it is trying to sneak in what an a either of you remember these, uh, sort of children's, uh, shows when one of these things is not like the other? Um, so it's trying to sneak in here within a list of seven or so pro se, uh, exemptions that the notion that if you are a, uh, a [00:32:00] participant in IRS annual filing season program, record of completion, whatever that is, then you may represent a taxpayer's on returns that you prepare and it does it does bring to mind a something that was Apocryphally, uh, credited to Abraham Lincoln. He was supposedly asked the riddle of, uh, what if you if you call the dog's tail a leg? How many legs does a dog have? [00:32:30] And Lincoln's answer, of course, because he's Abe Lincoln is four, because calling the tail a leg does not make it so. And in this case, the IRS is trying to call a tail a leg. It just because folks have decided they're going to voluntarily take some. See, it doesn't mean that they have demonstrated the least bit of competence, the least bit of understanding and what representation is. And just because I prepared the return doesn't really mean that I'm in any way [00:33:00] set to defend the return. And by the way, there are a lot of reasons that and the longer I'm in this business, by the way, the more firmly I believe that the that there were a lot of good reasons not to be the person that defends the return that you prepare and I and I'm seeing it, I'm seeing it, I'm seeing a yes there.
Annie Schwab: Well I get well I can I can see how in some cases that would make very good sense.
Bob Kerr: Well it's easy. You're always setting yourself [00:33:30] up for conflict of interest and you're always, by the way, setting yourself up for your client to throw you under the bus, which I.
Roger Harris: Know.
Bob Kerr: Nobody on this call has ever had a client do that, but I assure you, others have. So so again, this this whole notion of, of trying to bring in this, this thing that's not a credential, the annual filing season thingy is not a credential. And it confuses [00:34:00] the public. And then IRS, adding insult to injury, decides it's going to abbreviate it by with Afsp and you guys, and you've been at this and I assume, Andy, you've been at this long enough as well. If you give anybody that has even the remotest appearance of a credential, they're going to slap that thing behind their name and then they're going to mislead the public. Going back to our earlier conversation, that it means something that it doesn't.
Roger Harris: Right. This [00:34:30] was something the service came up with after loving to try to do something in response to losing the loving case. And so they came up with a voluntary program and and.
Annie Schwab: It's still there.
Roger Harris: Yeah. Oh, yeah.
Annie Schwab: I mean, this.
Annie Schwab: Is this is not something that's gone away. So it.
Roger Harris: Right.So.
Annie Schwab: You can voluntarily take I think it's a yearly test and you get you.
Bob Kerr: Have to take.
Bob Kerr: X hours of CPE and some sort of quiz.
Annie Schwab: Mhm.
Roger Harris: Right. Yeah. [00:35:00] And and look I'm not going to sit here and say that everybody that passed a test is a genius or can't become, you know, disreputable or I mean, because, again, there is no perfect solution, but just bringing masses of people in and giving them a title. I don't and I guess again, it was just like, well, we'll show you that you may beat us in court, but we'll do what we can to to do something. And, you know, maybe they're better. We're not I haven't [00:35:30] seen any. I don't know if anybody's actually tried to study it to see. But I've talked to a lot of people that are proud of it. So at our forums. Um, because again, that's that's all they have. And I'm thinking if you're good enough, go take a real test. I mean, it's kind of my opinion. And but so they want to give them expanded rights in the 230. Is that is that what I'm hearing? Yeah. Yeah.
Bob Kerr: And they want to they want to give this this proposal would give the [00:36:00] the people who don't hold a credential, the limited practice rights before the agency Fancy for it, apparently for a sort of exam, but extensions of exam to include. Um. Taxpayer advocate and a couple of other things that, uh, have a pretty wide beachfront by virtue of having taken a quiz and having prepared the tax return, but at the same time, and the Treasury itself, in previous [00:36:30] iterations of circular 230 and in previous iterations of regs, has said that the in 1035 it's 1035 is competency, right. And so competency for us as practitioners is kind of a big deal. Or I've always thought it's kind of a big deal. Sure. Um, and so the 1035 provides that a practitioner must possess the necessary competency to engage in practice for the Internal Revenue Service. Competent practice requires [00:37:00] the appropriate level of knowledge, skill, thoroughness, and preparation necessary for the matter for which the practitioner is engaged, and at the same time, those who participate in the Return Preparer Office annual filing season program are not practitioners, and the far from exacting requirements to participate in the program include nothing necessitating the slightest bit of knowledge necessary to represent taxpayers. That requires nothing. What is the cp2000?
Annie Schwab: Right, [00:37:30] right.
Roger Harris: It's a letter. Yeah, I got a letter.
Bob Kerr: What's the what's the difference between a 30 day letter and a 90 day letter? It would be nice to know. Right?
Roger Harris: 60 days, 60, 60 days.
Bob Kerr: 60 days. True, true. You can you know that's mail. That's just mail thing.
Roger Harris: Yeah. Any let's move talk about. And then I want to hear Bob's comments because what's different talk about what we currently have to do in the case of our knowledge of an error or omission. And then [00:38:00] what's changing here. So what's our rule today? If we become aware of an error or omission on someone's tax return.
Annie Schwab: We have to disclose it or pull or disengage at that point and then disengage.
Bob Kerr: Disclose to whom though? If I may, Annie.
Annie Schwab: Make it. Make it known to the taxpayer that there was an error on the return.
Bob Kerr: Yes.
Annie Schwab: Um, and so it becomes, you know, something that that is important for tax preparer to be [00:38:30] able to identify, but then know what to do when.
Roger Harris: And advise the client.
Annie Schwab: And advise whatever direction to take.
Bob Kerr: I'd argue also and I and you guys can you know, you guys can roll your eyes. I I'd argue that there's a significant distinction now when we when we look at circular 230 as now clearly being a document that that regulates practice not prep right. Practice.
Roger Harris: Right.
Bob Kerr: And so the notion [00:39:00] to me the notion of air knowledge of error or omission and our requirement to. To say, dear client, that you're depreciating land, you can't depreciate land. You need to file a 3113 and blah blah, blah, blah blah and leave it back to the client. Um, that would. Now at that point, I should not perpetuate that error. But that is a prep issue, [00:39:30] not a rep issue.
Roger Harris: Right. So because nothing to do with Prep is covered.
Bob Kerr: So and certainly 230 now doesn't has nothing to do with return prep, which is one of the things that has me a little wrapped around the axle. And I'm sorry, Annie, I just barged in.
Annie Schwab: Oh, absolutely. And, uh. Go ahead.
Roger Harris: We probably use it more in prep, just as a good business practice to make sure we inform people. But to your point, 230 [00:40:00] We spent ten minutes talking about it not covering return prep. So in a world of representation, what is the IRS? What are they proposing to do this different whatever as it relates to an error of omission. If I'm in a representation position, what is what is this proposed reg going to to change or do that we need to be aware of, even though I think we would apply it to Prep. [00:40:30] That's not what 230 is talking about is.
Bob Kerr: Annie, you want this? You want me to make a run at it?
Annie Schwab: Go ahead Go ahead. Um, I always do the talking on these things, so we'll I'll let you take this
Bob Kerr: Rest your voice then. Um, the the the struggle, then in in the new knowledge of error or omission again. And I just, I just think it's, it's intertwined with prep versus prep. But. But what? What [00:41:00] what IRS is saying here is that if when, um, when or if we see something in error on the return, we need to disclose it to clients. And then then client needs to, um, to change the return. Right. Um, and it would also then require practitioners to share with [00:41:30] IRS, you know, 1021 requires practitioners to advise a client of any noncompliance. And then the thing that causes such me such agita is this whole notion that I have to rat out my client.
Roger Harris: Mhm.
Bob Kerr: Um, if client.
Roger Harris: Has been a real question in the past, is I become aware of something I tell my client. Am I supposed to declare to the IRS what I have discovered. And [00:42:00] what I'm hearing you say is they're proposing that in that case, I'm required to tell the IRS what I found. Am I saying this correctly?
Bob Kerr: That has been my read of this, that, um, that the, um, uh, the preparer needs to, um. If the if the if the client doesn't, doesn't fix the return that the practitioner needs to disclose [00:42:30] this, um, to IRS, um, and I, I, I struggle with that, at least again, that's been been my take and.
Bob Kerr: Take of others.
Annie Schwab: That what if the what if the client says, I'm going to go down the street and get somebody else to do it now, or policing, whether it gets done, gets done correctly, gets done timely, gets done. You know I don't yeah.
Roger Harris: That puts us in a I mean, look, I mean, I'm not going to lie, but I just don't know how [00:43:00] you know it..
Annie Schwab: In the real world. How does it work?
Roger Harris: You're almost better off to be not represented and see if the IRS can catch it. I mean, because if you go to a really good, uh, person and they catch you a lot of stuff and they have to turn you in. You'd have been better off to do it yourself and see if the IRS could catch it, you know, because, uh, I mean, it's always been tough. I mean, you know, in terms of what you should disclose and not disclose, but to make it a requirement, or you could [00:43:30] find me or disbar me or whatever the penalties are if I don't turn in my client unless they refuse to, I don't know. I can see both sides, but it's it's going to put a tough make it tough on the practitioners once.
Bob Kerr: And this is, you know, perhaps a minority view. Imagine an exam okay. And I'm I'm have a 2840. I have the power of attorney for my client. So I am the client before exam, [00:44:00] before the revenue agent and revenue agent. I mean, exams are typically limited. And in recent years. And Roger and Annie, I'll defer to your experience. Must be greater than mine are very limited. And so I was audited a thousand years ago. It was a baby. It was a training audit. I put my mortgage interest on the on a there's a line from reported by banks and a line for reported otherwise. And I was an IRS employee at this time, by the way, and I put it on the wrong [00:44:30] line. And then those of you who work for IRS will appreciate this. And my manager comes to me with an orange folder in his hand. You don't ever want your manager coming to you with the orange folder in his hand, because that means you are in trouble. Um, because I put it on the wrong line. So I went through the audit, but the audit was that it was that issue.
Roger Harris: And so.
Bob Kerr: If if, If I'm representing someone, I look at the full return just because I don't know. Maybe that's odd that I would look at the whole thing because I just want [00:45:00] to understand the full picture. I mean, what we're going to be discussing is just a slice of the whole. But if I look at the whole thing and I find things like, huh, why did you depreciate land? I mean, going back to the dumb but simple example. Um, and why would I disclose that to IRS? I'm not. I'm not an adjunct. I'm not a, you know, mini auditor. I'm not a I'm not on, you know, a virus wants to discuss it, wants to ask me a question about anything. I will answer honestly because that is my responsibility. [00:45:30] I'm licensed. That's my responsibility. I'm not. I'm not, uh, just out here to do other exam work for the agency and then rat out my client. I mean, what is what how chilling is that on on representation altogether? And by the way, on the, um, uh, The taxpayer Bill of rights. My favorite, my favorite Tibor Plank is the right to representation.
Roger Harris: Right now this is going to be one. We're going to have to [00:46:00] really see what these final regs say and the position it puts us in. Because again you got people who are the preparer and the representative. Some people are just the representative. Uh you could even be ratting yourself out I guess if you're the preparer and the representative. But I'd feel more obligated to 30.
Bob Kerr: Again, again, again. It has nothing to do with prepping it with prep. No, nothing.
Roger Harris: But it just happens. I happened to be the preparer who now is doing it right.
Bob Kerr: Right. And still I, you know, I could have I [00:46:30] could have done some, made some really bad errors or, you know, errors in judgment. But that's not why, you know, it's an exam. And they and IRS wants to look at, I don't know, wants to look at my sketchy. Okay. But that means you're not looking at my said C or my said F or whatever.
Roger Harris: Right, Right. Right. Well, you're not well, right? I mean, that's okay.
Bob Kerr: I'm sorry. I yammer a lot. You should. You should talk less and listen more. I mean, [00:47:00] I don't know what your experience.
Roger Harris: Was telling you.
Bob Kerr: But.
Roger Harris: Yeah, I mean, typically now, because of resources, they come in with one particular issue or two. I mean, you know, what they're looking for. And, you know, I've seen them expand and grow, particularly in the business environment where they may, you know, find things, but start somewhere. Yeah, it starts here and who knows where it goes. And, you know, I think this is.
Bob Kerr: We have some defenses on your fishing expedition, by the way.
Roger Harris: Yeah, yeah. And, uh, of course, the way the way hiring [00:47:30] is going, this may be a thing we look back at. Remember back when you remember.
Bob Kerr: Back when there were audits? Yeah.
Roger Harris: Yeah. You know, who knows where.
Bob Kerr: Remember when I have something more than a CP 2000?
Roger Harris: Yeah. You actually had a person that, you know, you actually had to furnish documents and things.
Bob Kerr: So there was, there was this thing called an IDR.
Annie Schwab: Yeah, right.
Annie Schwab: I hope we're not going to be saying. Remember when they used to answer the phone? Remember when you used to be able to get help?
Roger Harris: Yeah. Yeah. Let's jump to something that [00:48:00] because we did offer comments in one section, but there's a section in the proposed regs about best practices. So Bob, talk about what they touched on and just come up much at the hearing. Was there much comment on something like this? Uh, or was this something that just got, you know, Annie and me and Paget?
Bob Kerr: There wasn't a lot of discussion on it. New York raised this during its testimony. Um, the IRS sort of making [00:48:30] the making this this brief as possible, which is an effort on my part. Uh, added what I want to add three things to best practices. It would like to add that at 10.6, it would like to add a bucket For data. Data security, right? It wants to add a bucket for mental impairment, and it wants to add a bucket for the sale or cessation of your practice.
Roger Harris: Right.
Bob Kerr: So those were the three [00:49:00] items that come in new into the best best practices at I think 10.9 I'm sorry, a 10.6 best practices or 1032 I don't remember offhand. In any event, it is these the three, the three provisions, the the there was in writing. There were others who commented on this. And I think the theme here is that, you know, it's it's motherhood, it's apple pie. It's, [00:49:30] it's, it's it's rooting for Georgia. Right? These are all these are all good things. And um, so we're not you know, we're not opposed to mental health. We're not opposed to having some sort of plan in place for if you become incapacitated. They're aspirational and they don't belong in circular 230.
Roger Harris: Right? I mean, we support all of those things. Yeah, exactly. We deal with them on a regular basis here. I mean, [00:50:00] life happens when you're in business and data security.
Annie Schwab: I mean, if it's not addressed in some fashion, that could lead to severe consequences. But but maybe you're right. Maybe it doesn't belong here. It's just that it.
Bob Kerr: Well, the data.
Annie Schwab: People are
Bob Kerr: I'm sorry. Data security is covered in, uh, Gramm Leach. I think it is. Um. And you have to have a wisp. You know, you have to have a rich information.Security plan. And so it [00:50:30] sort of asks an answer. Does it need to be in circular 230 also, I don't I don't I mean, I don't feel strongly on that particular plank on the mental impairment. It's there's a purely aspirational. And by the way guys, if.
Annie Schwab: How do you define that.
Bob Kerr: Well and by the way, if, if, if, if one of us gets out there and clearly slips away and in a way that's clearly right, what's the IRS going [00:51:00] to do? Are they going to come back and spank me after I've lost my mind? I mean, I know I'm sorry. That's a very coarse.
Annie Schwab: Right, right.
Bob Kerr: Insensitive.
Roger Harris: But I mean, that's. the point's well made.
Bob Kerr: One way.
Roger Harris: To put it. I mean, and succession could mean I've passed away.
Bob Kerr: Yeah. Again.
Bob Kerr: So you're going to have a posthumous mark on your record. Come on. Yeah.
Roger Harris: Bring it on.
Bob Kerr: So I think there's a certain like Reality.
Roger Harris: Yeah. Well, yeah. And we deal with this. Annie deals with it. I mean, every [00:51:30] time she runs our tax department. And I guess every tax season in the last 3 or 4, we've had a situation where we've had an office that we've had death, we've had sickness, we've had all kinds of things that we've had to step in and take over that to keep the client satisfied and and keep the firm going until and hopefully in most cases, they came back. But we actually offered some comment. If you're going to put it here, we've addressed [00:52:00] the 7216 issues, the disclosure issues in Paget to allow us to do that. But if you were an independent firm, uh, you're kind of between circular. 230 tells me I'm supposed to have this person help me, but 7216 says they can't look at my tax data. Well, how the hell are they going to help you?
Bob Kerr: Absolutely.
Annie Schwab: Right.
Bob Kerr: Absolutely.
Bob Kerr: We also we also suggested that the IRS should should strike these aspirational pieces additions and instead provide guidance on how to how [00:52:30] to how do we how do we manage for for sale or cessation. How do we manage? How do we thread the needle on 7216 because there are a bunch of sole soul soul practitioners out there solopreneurs,
Annie Schwab: Of course.
Roger Harris: And this is not a young profession.
Bob Kerr: No, no, no.
Roger Harris: Um, and he brings the average age down on this podcast.
Roger Harris: Significantly, but quite by quite a bit. But, but.
Roger Harris: But generally speaking, I mean, again, [00:53:00] I agree with you. This is a great topic and something that needs to the industry needs to be aware of. But I don't know how you tell people you should have a plan, but you can't implement it, you know, which is kind of where we are right now. So so yeah, we offered comment and I think you were probably a little more direct than it shouldn't be there. We kind of took the position. Look, if it's going to be here, you got to do it. 7216. Otherwise we [00:53:30] could handle it because we went back and set up procedures internally to get clients to approve our help in advance. So, uh, but that's not typical in the in the industry.
Bob Kerr: And Roger, you and I have discussed again this for decades. You know, the I have vague recollections of sitting with you years ago talking about the potted plant issue, if that makes you know how your how to use the tax data. Remember.
Roger Harris: Right. Right.
Bob Kerr: Because it was it was disclosure. [00:54:00]And use or is the other half of that.
Annie Schwab: Right.
Roger Harris: Right. And I don't know. I mean you got there's some exceptions for sales of practices, but I mean who's going to buy a firm if they can't look at the underlying assets, which are the clients of the firm in great detail and not ever.
Annie Schwab: Make a decision. Right.
Roger Harris: And not every person that looks at it is going to buy. So you've you know, and so you've got some I just think it's a it's a noble [00:54:30] feeling to say this is protected and we can't use it for I know what they were trying to stop was you'd come in the front door to get your taxes done. And before you left, you went through seven other offices where they tried to sell you mortgages insurance.
Annie Schwab: Yes, yes.
Roger Harris: You know, everything like that. But there's just some practical situations in our industry that we could never get, because I think you and I were there when all this was being proposed. We could never get them to separate the bad guys [00:55:00] from the realities of what it took to run a firm and what was going to happen. And, you know,
Bob Kerr: I mean, we constantly.
Bob Kerr: Find ourselves in the, in the, in the jaws of this is why you can't have nice things. Right? And so right there, we're always trying to build the rules for miscreants. And it makes it makes the world for the rest of us who aren't miscreants, much more difficult to navigate. And this is, you know, another example, an IRS wants to make this a best [00:55:30] practice on sale or cessation. And then there's, uh, Again does the race and the question of not that it's a bad idea, but does it belong in circular 230 right?
Roger Harris: Good idea. Maybe a bad.
Bob Kerr: Place.
Roger Harris: All right, Annie, we're about time to wrap up anything we need to touch on before we go. We'll probably get Bob back because I'm looking at his list here. We got about.
Bob Kerr: I know you.
Annie Schwab: No. This has been very, very interesting and informative. I hope the audience enjoys it. And [00:56:00] we would love to have you back. Yes.
Bob Kerr: Well thank you. I'd appreciate I'd love to come back, Roger, if I can, to to close this one thing, if you don't mind. Sure. I think it's important for us to keep in mind, as I sort of jumped up and down earlier is your proposed regs. And so they're they're only proposed. Um, right. The last time IRS published proposed regs, it took 20 months for them to go find out. So if you know, I don't know that past performance is is is any indicator of future results in this [00:56:30] case. I wouldn't expect to see anything out of this until 2026. And given the current political environment in which. The administration is not particularly big on on regs. I don't know if they. If they ever come out.
Roger Harris: Yeah. I mean it's possible this is this never comes out.
Annie Schwab: Yeah.
Bob Kerr: So just just just for folks out there to calibrate I think I want. I wanted to get that. Yeah.
Roger Harris: It's important. [00:57:00] And you said this earlier. It's important that the rules of today are still the rules of today. This is the proposed changes. But to your point right now, it seems like the the powers that be are focusing on processing returns and getting returns processed and I guess getting refund checks out. Not a lot of priority on guidance. And the other parts that the average everyday person probably doesn't realize the IRS does a lot [00:57:30] of. And so if 22 months was the norm, This ain't the norm.
Annie Schwab: I was about to say this might be more like 36 months.
Bob Kerr: Right?
Bob Kerr: If I just temper expectations here and and for folks who are listening in some, you know, month or 2 or 3 from now thinking that they missed the boat or, you know, where is it? I have no expectation of anything coming down until next year.
Roger Harris: Right?
Bob Kerr: If at all.
Roger Harris: If you're, If you want to know what's true today, go read the rules as they exist today [00:58:00] and you can't get the book anymore. You have to go online. But I remember there used to be a little green book that was circular 230 that we all had in our office, but yeah, I don't think there's any more of those.
Bob Kerr: It's an opportunity for you. Can you can you can have them publish internally and put Paget on the front cover.
Roger Harris: That's right. We'll go out and semicircular 230. We can sell.
Bob Kerr: So how up to date. Paget is in the year of Grace 2025.
Roger Harris: Right. Here's the here's the last rules from 2014. Get your copy here. All [00:58:30] right. But Uh. Anything else? Annie?
Annie Schwab: Nope. I think we've touched on a number of things I like. I said, I would love to have you back, and, um, maybe we'll make that happen sooner than later.
Roger Harris: And we'll talk about who knows what the current state of the IRS will be. But we'll get you back and talk about that, because I'm sure Bob lives in DC, so he lives and breathes this stuff. And, uh, who knows what it'll be a month from now once we all come out filing season. Who knows? So, Bob, thanks. Good to always good to see you. [00:59:00] Thank you for joining us on the podcast today. Uh.
Bob Kerr: My pleasure. Thank you for the invitation.
Roger Harris: We'll have to do this again. So. All right, everybody, thank you for listening to this podcast. We'll be back in a couple of weeks with another one. And, uh, Bob, thanks. See you in DC.
Bob Kerr: Okay. Bye now.
Roger Harris: Bye, everybody.
