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What is a CRTP and how does the state of California regulate tax preparers.

by
Lee Reams II
on
8/20/2015
What is a CRTP and how does the state of California regulate tax preparers.

Lee Reams:

I’m with Phil Storrer CPA, Professor Emeritus from Cal-State University East Bay, formally Hayward, who has taught in the tax area for 33 years.

Phil is the current lead Education Course Reviewer for the California Tax Education Council (CTEC). He has been a CTEC reviewer since its inception in 1997. We brought Phil in today for our thought leaders series. He reviews tax preparation courses for the benefit of California taxpayers.

Welcome Phil, thank you for joining me today. Before we get started I wanted to highlight an important point. I want to clarify for the California taxpayer, what is the difference between a CPA, an Enrolled Agent and what is called a CTEC Registered Tax Preparer, also known as a CRTP?

Phil Storrer:

Well Lee, CPA’s are more on the accounting side of the profession. They take an exam; but in order to qualify to sit for the exam they have to have a Bachelor’s Degree in Accounting or the equivalent of Accounting Major at the Undergraduate level. The 14-hour exam consists of four parts, financial accounting, auditing, regulation, and business. Federal income tax is a part of regulation. Approximately 10% of a 14-hour exam consists of tax. Contrast that with the Enrolled Agents 10.5 hour exam which is 100% federal tax. The EA exam consists of three parts, individual business, ethics, and professional representation – rules and regulations controlling the representation of clients before the IRS. It’s a very rigorous academic, yet practical, exam; so EA’s take a 10.5 hour exam on federal tax as opposed to the CPA exam which consists of only 1.5 hours.

As far as the CRTP is concerned, the CTEC Registered Tax Preparer is a professional tax preparer who has taken 45 hours of federal tax training and 15 hours of California tax training, a total of 60 hours. At the end of this two-part course they take an exam that consists of 300 multiple choice questions. They must score 70% or better to pass. order then to be entitled to register with the California Tax Education (CTEC). CTEC is a non-profit organization that administer the Tax Prepare Act, which was enacted by the California State Legislature in 1997.

In addition to the 60 hours of qualifying education the CTEC Registered Tax Preparer (CRTP) has an annual requirement to take 20 hours of continuing education, that consists of four parts; 10 hours of tax law- a broad range of federal tax issues, 3 hours of update (current developments), 2 hours of ethics, and 5 hours of California State Tax Law.

Lee Reams:

That’s some good insight. Explain to me then how then CTEC, you mentioned the continuing education part of it, but exactly how does CTEC regulate these tax professionals other than them taking the continuing education? Explain to me what are the other requirements?

Phil Storrer:

I’m not as familiar with the administrative parts of the requirements because I deal with the technical reviews of the courses that are submitted for CTEC approval. This is part of the legislative charge for CTEC- to approve education providers. These are companies that develop courses that CRTP’s take that meets this entry level qualifying education and the annual continuing education requirement.

Lee Reams:

Okay, let’s focus on continuing education because I think it’s one of the most important things that keep tax professionals up to date for qualified education. Kind of give me an idea, how do you maintain the level of education providers to make sure that anyone registered with CTEC knows what they’re doing. They know the federal tax law changes; they know the difference between state tax laws. Just give us an idea of how CTEC efforts maintain that quality education.

Phil Storrer:

It may help, Lee, for me to start by saying that these courses have to be of such a nature that they promote competent tax preparation in the State of California. That’s the overriding educational concern, that our team of three technical reviewers have. Do these courses and all of the course components contribute to competent tax preparation by CRTP’s in California. We evaluate these courses, and as a matter of fact let me just reflect, there are 100 plus companies that are currently qualified by CTEC, approved by California Tax Education Council to sell these courses to the California CRTP’s.

CTEC educational standards require that these providers reapply every three years to have their once every three years to have their approved status extended. The providers are required to submit the most popular course and we evaluate it to confirm that is meets CTEC educational standards.

Lee Reams:

Okay. I know there’s been some changes in the last couple years here to improve the quality of the education. What steps have CTEC done to kind of tighten the standards to ensure California taxpayers that they’re working with a CRTP that they are qualified to do so?

Phil Storrer:

Three or four years ago the Internal Revenue Service launched a program requiring all non-licensed tax prepares to register with the IRS and annually take continuing education. Tax prepares objected and the issue of statutory authority for this program was brought before the District Court and the D.C District Court ruled that the IRS did not have the statutory authority to require continuing education – require registration yes, but not continuing education. So the IRS responded with a voluntary program that is called the Annual Filing Season Program (AFSP) which encourages tax return preparers, the non-licensed, the non-CPA, and non-EA, about 600,000 nationwide, to voluntarily qualify to be registered with the IRS. Under this program tax return preparers must take 18 hours of continuing tax education including a 6 hour refresher course (Annual Federal Tax Refresher course). They must also pass an exam based on the refresher course that consists of 100 questions. Successful participants in the IRS AFSP are listed in a public data base available on line at irs.gov. 

This is a long way to your question, but that program was the occasion for taking a fresh look at all CTEC educational standards. It was decided that it would further CTEC educational objectives if CTEC educational standards conformed, as much as practical, to IRS’s standards. Since then CTEC has worked with the IRS, sharing information helpful to that goal.

This has reinvigorated CTEC’s educational program of review and enforcement. It was timely. CTEC had been, over the years, observing some erosion in the quality of education. I like to call this new initiative, “CTEC 2.0”.

By the way, Lee, taxpayers searching for a credentialed tax return preparer should request evidence the preparer is California CTEC registered. It’s the law. All paid tax return preparers must be CTEC registered. Check your preparer out on CTEC’s website.

Lee Reams:

From listening to you, your saying that the difference in making these courses a little more challenging has definitely improved the overall updates that the California tax preparers will see, do you think so?

Phil Storrer:

I really think so, we still see a significant amount of non-compliance in about 50% of the courses we are reviewing this year; and I estimate it will take two or three more years to adequately address this level of non-compliance.

Lee Reams:

Right, but you have taken steps in holding the courses up to the levels that you guys find acceptable and overall that’s going to help the taxpayer. You have a better review process; making sure the educators cover the latest tax changes that these guys are aware of what’s going on?

Phil Storrer:

Yes, in fact you made reference to changes in the last couple of years, not only in CTEC educational standards, but in tax law in general. The Affordable Care Act has given rise to a whole new set of non-tax rules for tax return preparation requiring preparers to become familiar with certain aspects of medical insurance. This level of complexity was the result of the very confusing 2500 page body of health care laws.

In addition the Treasury Department and the IRS have promulgated regulations and interpretive rulings involving what’s called the Capitalization, disposition, and repair regulations. These regulations affect virtually every business including the rental of one property.

There are new developments every day or so that CRTP’s must know and therefore should be included in appropriate continuing education courses

Lee Reams:

I think that’s related and I think that’s good for the public to know that there are steps being taken by the groups that regulate the CRTP program that really would protect them when they go find their next tax professional.

I kind of want to wrap this up; I do appreciate your time and insight. I do feel that the steps CTEC is taking are really going to help. As far as I know CTEC.org has a list of all current registered tax professionals, so that is a resource for Californian taxpayers. And TaxBuzz.com has a huge marketplace of California tax professionals with reviews and background screenings to really help California consumers match up with the best tax professional.

Again thank you Phil for your time today and hopefully you can join us again.

Phil Storrer:

My pleasure, have a good day.

Lee Reams:

Thank you.

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Lee Reams II

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