National taxpayer advocate's report notes serious problems.

• Author: Chambers, Valrie

Nina Olson, the national taxpayer advocate (NTA), has presented her 2009 annual report to Congress. Her bottom-line finding is that "fundamental tax simplification is desperately needed." Part of her report includes her identification and analysis of the most serious problems taxpayers are facing and her recommendations for alleviating these problems. This item categorizes her proposals into three areas, according to whom the proposals are most likely to affect in the short term.

Proposals Affecting the Practitioner Community

According to the NTA report, about 58% of individual taxpayers and 80% of small businesses use paid tax preparers, but the General Accounting Office is concerned about preparer accuracy. Olson supports the IRS's proposal that all unenrolled preparers pass a basic tax return preparation exam and thereafter complete continuing education in order to be able to file clients' tax returns. In addition, she proposes a public awareness campaign to educate taxpayers about preparer requirements and the creation of a publicly available database listing all authorized preparers.

Olson also recommends increased preparer due diligence and a large-scale program of IRS preparer visits, which the IRS subsequently executed in the form of the "10,000 letters program." Under this program, 10,000 preparers received letters in January and February 2010 to promote compliance and professional ethics. However, many CPAs were troubled by the perceived tone of the letter, an increase in the substantiation requirements for Schedule C expenses, and a request for a follow-up visit to the CPA's office during the busy tax-filing season (see letter from Alan Einhorn, chair of the AICPA's Tax Executive Committee, to SBSE Commissioner Chris Wagner (April 2, 2010), http://tinyurl.com/EinhornLetter).

Olson proposes that all persons who prepare tax returns and interact with taxpayers should obtain and use a unique preparer tax identification number (PTIN), not just paid preparers signing the tax return. Subsequent to her report, the IRS issued proposed rules (REG-134235-08) defining anyone who must obtain a PTIN as "an individual who is compensated for preparing, or assisting in the preparation of, all or substantially all of a tax return or claim for refund of tax." That is, whether or not a tax preparer signs a return, anyone preparing substantially all of the tax return must get a PTIN; it is possible that more than one party will be a tax preparer on a...